In its Superannuation: Assessing Efficiency and Competition draft report, the Productivity Commission (PC) said the superannuation balance erosion caused by group insurance is “not insignificant” and that more needs to be done to fix this problem.
Further, the PC noted that recent efforts by the industry to rectify the problem “while welcome, are limited” in their capacity to assist.
“While initiatives taken by industry to date are a step in the right direction and the industry code of practice offers some limited prospects for improving member outcomes, more work is needed,” the report said.
The PC recommended that the government form a joint task force comprising members from both APRA and ASIC to enforce the code of practice proposed by industry members, and supported the idea that group insurance should be moved to an ‘opt-in’ arrangement for members under the age of 25.
Further, the PC suggested that the government review the appropriateness of the current ‘opt-out’ model more generally and specify other cohorts where an ‘opt-in’ model might be more appropriate, such as for members with low account balances.
An independent review should also be established within four years of the completion of the PC’s inquiry to look into insurance in super arrangements and evaluate the initiatives taken by industry players and assess whether further action is necessary, the PC proposed.
“This would provide an opportunity to review progress and the need for further policy interventions in the absence of meaningful remediation of unnecessary balance erosion and inappropriate insurance products for members,” the report said.
None of this is NEW. Every adviser knows of the abuses on clients by industry funds. There are of course Corporate Funds that are also rubbish. ASIC has always been biased to industry funds, but ASIC do not talk to advisers !!
i remember back in the day, there was an option with (some) personal superannuation products where there was a minimum “death benefit” made up of life insurance and account balance which would be applied to the super account, this achieved two things 1. minimum payout for benefits to family, and 2. as the a/c balance grew, the sum insured fell and consequently so did the premium cost.
of course this worked best when the levels of cover were “advised” in consultation with the client. it would however solve part of the issue discussed in the article above.