Removing the compulsion from insurance inside superannuation with respect to under-25s will have a “material impact” on businesses operating in the superannuation sector, according to the Australian Prudential Regulation Authority (APRA).
In documentation filed with the Senate Economics Legislation Committee, the regulator has substantially backed research from KPMG that the Federal Budget measure will have serious financial consequences, particularly for group insurers.
In doing so, APRA warned that appropriate transitional arrangements would need to be put in place “to enable the superannuation and life insurance industries to implement the measures in the Bill in manner that minimises any unintended consequences and adverse outcomes for members”.
APRA said that while it supported the policy intent of the measures contained in the Bill, particularly those aimed at improving member outcomes by reducing the inappropriate erosion of members’ retirement savings, the impacts of the legislation needed to be taken into account.
“APRA is cognisant, however, that the measures are likely to have a material impact on the business operations of a number of entities operating within the superannuation sector, and for insurers providing group insurance,” it said.
“Given the nature of the measures, changes are potentially required by all superannuation entities, working with their insurers, to the design, pricing and communication to members of insurance arrangements, and the systems and processes used to manage insurance arrangements,” the APRA documentation said. “Similarly, the other proposals in the Bill in relation to fees will require changes to systems and processes, and communication with members, by all superannuation entities.”
The regulator said it was “currently assessing the potential short and medium-term impacts of the measures, taking into account industry input as appropriate, and seeking to identify any practical barriers that may hinder RSEs and insurers in implementing the measures within the proposed timeframes”.