Did the Govt fail to understand ‘risk-only’ super fund members?

19 July 2019

“Risk-only members” - people who take financial advice and join a superannuation fund for the major purpose of obtaining insurance coverage - are at high risk of being seriously disadvantaged by the Government’s latest legislative moves on insurance inside superannuation, according to major insurer, TAL.

Furthermore, the big insurer has pointed out that the numbers of risk-only superannuation fund members runs into the hundreds of thousands.

TAL used a submission to the Senate Economics Legislation Committee review of the Treasury Laws Amendment (Putting Members’ Interests First) Bill 2019 to argue that such “risk-only” members should be excluded from the legislation.

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In doing so, TAL pointed to the fact that it had a large book of “risk-only” customers “with approximately 74,000 members holding risk-only cover through superannuation funds”.

“TAL’s numbers do not account for other life insurers in the industry (e.g., AIA, BT, Zurich) that also have significant numbers of risk-only members,” the submission said. “All of these members are at risk of having their insurance policies cancelled because of the low balance account provisions (section 68AAB) in the Bill.”

“Risk-only members have chosen to open superannuation accounts, typically with no accumulation balance, for the purpose of maintaining insurance coverage. These members regularly contribute to their accounts (at least annually, through direct contributions or rollover from their primary superannuation account), and these contributions or rollovers are used to fund insurance premiums,” the TAL submission said.

“Risk-only policies require a member to apply for specific types and levels of insurance of their choosing through superannuation, and the members are subject to underwriting, unlike default group insurance cover.”

“The level or features of the insurance cover held through risk-only accounts may not have been available through the member’s primary superannuation account. Moreover, a significant proportion of these members have received personal financial advice on these arrangements. “

The TAL submission said that as “risk-only” members essentially had nil balance accounts (apart from funding premiums), the low balance provisions in section 68AAB would prohibit future risk-only insurance product offerings, unless trustees received an insurance election opt-in from members.

“It will also mean that existing risk-only members will have their cover cancelled under the Bill, unless they make an election. This is clearly an unintended consequence,” it said.   

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Raises the question about what politicians on either side of the house understand about Australia's financial systems. I could name two who were prominent in the recent election who had no idea how the taxation system works. Unless the politicians themselves become subject to the same rules and regulations that the ordinary man or woman in the street is subject to, they will never know. We should stop providing taxpayer funded incomes for life for politicians, and make them save for their retirement like everyone else. We should make them self insure for life's tragedies so they can learn how best to cope. And we should make them all live on Newstart for a couple of months of the year to see how they like it. I could go on.

Given that the turning off of insurance affects under 25s, inactive accounts and those under $6000, I don’t think many on the risk only members of funds are young, low balance and long term inactive? I would have thought many are SMSF owners looking to leverage group life scale and AALs offered by industry funds, and won’t really affect insurers books?

There is no in depth understanding at a political level at all in relation to this matter or the so called Protecting My Super legislation which is now resulting in 1000's & 1000's of people wanting to reinstate their cover that was inadvertently missed amongst the onslaught of correspondence received over a very concentrated time frame.
The level of unintended consequences of legislative stuff ups is simply negligent.
Whilst Josh Frydenburg talking the economy up every day is fine, he needs to now show some real leadership and common sense and realise that Canberra " thought bubbles" often burst because the people who implement these regulations do not understand the complexity at ground level and do not understand the scope and breadth of the floe on effect of proposed or actual legislative change regarding financial services or insurance matters.
Whilst people have a responsibility to be engaged in relation to their insurance and superannuation matters, we all know the vast majority require guidance and direction to make correct decisions in their best interest.
The mandatory removal of insurance cover through the Protecting My Super legislation in such a short time frame is a disaster.
How the hell does " Protecting My Super " matter at all if " Protecting My Family and Myself" is not considered the first and foremost priority.
It's ok to think about and plan for your retirement in 10, 20 or 30 years time, but if you don't make it all or don't make it one piece, you need to the insurance cover to replace the capital that may have accumulated over that 10, 20 or 30 time frame.
There will be disaster stories that come out of this whole mess in the next 6 to 12 months and the responsibility should be squarely attributed to this incompetent and ill thought out legislative mess.
The Govt need to back off fiddling with superannuation and insurance matters and concentrate on running the country and managing the economy.
They take 15% of every concessional contribution in the country and 15% of earnings of every account in accumulation phase and they deliver nothing for it.
Lets call the Contributions Tax a 15% Entry Fee which is exactly what it is.
Advisers have not been taking Contribution Fees on superannuation for years, so why on earth is the Govt pilfering Australia's retirement monies?........because the gravy train just keeps on going.......and they have3 the audacity to refer to grandfathered commissions as the gravy train when the vast majority of advisers deliver a level of guidance and service to those clients for those payments.
Shambolic, irresponsible and negligent management from the Govt.

The law of unintended consequences but in this case, consequences most of us would've been able to point out if they actually gave a damn. Though with these blanket regulations on the industry is it really a surprise they don't care?

Of course the politicians have no understanding, they're just there to write the laws they're told to write by the industry lobbyists and then sell them to the public after the fact.

The less interference the better.

This is one of the lowest issues as far as unintended consequences go. You would expect these “risk only” members are engaged with their super and have planners who can tell them they need to opt in. Super funds are making this easy for members to do, so I wouldn’t expect to see large volumes of these members inadvertently losing cover. If they do, their adviser hasn’t done their job

What an utterly ridiculous comment.
Shows a distinct lack of understanding.
So, what is the highest issue as far as unintended consequences go ?
What are you saying Jenni.....that despite repeated contacts from the member's super fund and correspondence from an adviser that members won't inadvertently respond in their own best interest and make an error ??
And then you are blaming the adviser for not doing their job.!
Are you an adviser Jenni ??.....if so, the word "righteous" comes very quickly to mind.

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