Australia's largest life insurer TAL has proposed that an activity test be carried out to determine whether a member of a superannuation fund is eligible for life insurance cover within super, so that members who are active, or working, would continue to get cover even if their super balance is less than A$6,000 ($4,435).
This proposal counters the federal government's plan, announced in the Budget speech in May, to revamp the superannuation system. In the proposed overhaul, the government will force super funds to end automatic life insurance cover for all new members under 25 and move to an opt-in basis for cover from July 2019. Insurance will also be optional for savers with less than A$6,000 in their accounts and cover will be stopped on “inactive” super accounts which have not received a contribution for 13 months. The aim is to stop super members from having their balances eroded by the payment of fees for unnecessary life insurance.
Mr Brett Clark, TAL chief executive, said 900,000 retirement savers would be better off under under the company's proposal submitted to a Senate economics committee currently reviewing the government's plans for an overhaul of the superannuation system, according to a report in The Australian Financial Review.
"Active membership in a simplistic sense is defined by contributions being made by an employer to a super account. That's generally accepted as a key element of being an 'active' member," he told the newspaper.
"The changes we are proposing to the legislation are in our mind very modest ... we'd still need a material change and reduction of insurance provided through super. That by its very nature would change the underlying insurance pool and.. perhaps prices in time too," he said.
Some industry experts say premiums could rise by as much as 30% under the government's plans.
Mr Clark said that it would be "easy" for super funds to track their active members, adding that "there is broad agreement across funds insurers, consumer groups and regulators, that active members should retain their insurance".