Notwithstanding the views of some members of the Senate Economics Legislation Committee, one thing should by now be obvious to the re-elected Morrison Federal Government – it is a folly and wholly unnecessary to rush the implementation of further legislative changes to insurance inside superannuation.
The legislation in question, the Treasury Laws Amendment (Putting Members' Interests First) Bill 2019 was originally intended to be implemented as part of a larger legislative package and is proof of how quickly such initiatives can date and why the Government should not have blindly assumed that what was appropriate in mid-to-late 2018 would be appropriate in the middle of 2019.
The legislation, largely drafted whilst the now-retired Kelly O’Dwyer was the relevant minister, is clumsy and, in the context of the already implemented Protecting Your Super (PYS) legislation, already proving confusing to fund members.
Further, and as has been pointed out by actuarial research house, Rice Warner, there is little that is likely to be achieved by this latest round of legislation that cannot be achieved by way of the superannuation funds and insurers themselves fully implementing the Insurance Inside Superannuation Code of Conduct to ensure that premium erosion does not occur.
Any objective reading of the 50 or so submissions filed with the Senate Economics Legislation Committee review of the legislation will have told Parliamentarians that the superannuation and insurance industries are not opposed to the underlying objectives of the legislation but are deeply concerned about the timing and the possible unintended consequences.
Among those unintended consequences is the likelihood that so-called “risk-only” members will lose insurance cover they have obtained after taking good financial advice and have quite deliberately sought to maintain.
Given that the legislation quite specifically targets low balance and “inactive” accounts, it cannot help but impact “risk-only” members who conventionally only transact on their accounts once or twice a year. Further, according to industry data, the number of members who can be counted as “risk-only” runs into the scores of thousands.
Then, too, there is the danger that superannuation fund members will be left surprised and at serious risk of loss because, despite the best efforts of the industry, they were unaware that new Government rules had removed their insurance cover.
The degree to which superannuation fund members are at risk of being surprised was rammed home by the AMP Limited submission which told the Senate Committee that as at 15 July, it had received more than 440 customer requests to reinstate insurance cancelled as a result of the PYS legislation.
Just as importantly, AMP said it had received elections to retain insurance from more than 5,000 superannuation customers with supposedly inactive accounts under the PYS rules, that also had balances of less than $6,000.
Given all of these circumstances, it is unfortunate that the Senate Economics Legislation Committee failed to adequately recognise that the time-frames the legislation seeks to impose on the superannuation and insurance industries are inappropriate and that the two-month extension it has recommended is not going to be long enough.
The Government may yet be made to pay a political price for its haste.