The Productivity Commission will consider the appropriateness of insurance arrangements inside superannuation in its review of the super system, according to an issues paper released last Friday by the Australian Government's independent research and advisory body.
The review of insurance arrangements will include:
- the impact of insurance premiums on retirement incomes of both default cover and individually underwritten cover funded inside of superannuation;
- the extent to which current policy settings offset costs to government in the form of reduced social security payments;
- whether policy changes could improve default cover through superannuation, so that default cover provides value-for-money; does not inappropriately erode the retirement savings of members of all ages; and delivers consistent outcomes across the system; and
- whether policy changes are needed to ensure that insurance is not a barrier to account consolidation.
The Commission will look at details like:
- the impact of insurance on retirement balances
- insurance cover by age band and market segment, existence and consolidation of duplicate policies, take-up in choice products
- comparison of premiums inside and outside of superannuation and historical ratio of claims to premium revenue
- effect of policy settings on social security costs to Government
- ease and extent of members opting out of insurance, amending cover or making claims
- funds’ use of member information to provide default insurance cover.
The study, which began on 1 July and which assesses the competitiveness and efficiency of the superannuation system, is the third stage in the government’s review of Australia’s retirement income industry, in response to the 2014 Financial System Inquiry. The first stage identified the criteria on which to measure efficient outcomes for fund members and the second stage looked at alternate models for allocating super for members who don’t nominate a fund. The third stage will gauge whether members have received an efficient and competitive system that benefits their savings into retirement.
The issues paper says that small changes in the super system can have a real impact on people’s standard of living in retirement.
The paper also says that the Commission will be paying close attention to whether current disclosure practices were giving consumers a “consistent” tool to compare funds and whether additional information would improve outcomes for fund members.
The Commission will produce a draft report next January and its final report in June 2018.