Hundreds of thousands lose super insurance cover

The numbers of people who have lost insurance coverage under the Government’s Protecting Your Superannuation (PYS) legislation is now running well into the hundreds of thousands.

A number of superannuation funds contacted by Money Management have confirmed that between 15 and 25 per cent of their low-balance or inactive account members had either deliberately or inadvertently failed to opt-in to insurance coverage.

The dimensions of the problem have been rammed home by confirmation that around 100,000 members of superannuation funds run by Commonwealth Bank subsidiary, Colonial First State were no longer covered by insurance because of the legislation which came into effect from 1 July, this year.

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A spokesman for CFS made clear that the 100,000 member figure reflected the situation across all the company’s funds, rather than any one particular fund.

He later confirmed that the 100,000 member figure represented about 12 per cent of all people who were members of CFS superannuation funds.

This information has come at the same time as supplementary information provided by AMP Limited to the Senate Economics Legislation Committee confirmed not only the high number of members who had been impacted by the Protecting Your Superannuation legislation, but also the growing numbers who were seeking to have their insurance cover reinstated.

AMP’s original submission pointed to 440 customer requests for reinstatement of insurance and noted that three days later, on 18 July, that number had risen to 1,149.

“We expect this to continue to increase,” the AMP submission said.

Deloitte superannuation partner, Russell Mason said that while he had not gained a picture of the overall numbers involved, the 15 per cent to 25 per cent estimate seemed accurate, with some funds with higher numbers of young, lower-paid workers likely to be more seriously affected.

The impact of the PYS legislation has come at the same time as the Senate Economics Legislation Committee has largely dismissed industry calls for a 12 month delay to the implementation of the allied Treasury Laws Amendment (Putting Members’ Interests First) Bill.

Instead, the committee has recommended only a three month delay – something which the industry claims is not going to be long enough.

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If I, as an adviser, recommended my client switch super funds, thereby causing a loss of insurance cover, I would be investigated by ASIC. What the Government has done is nothing less than unconscionable conduct, worse than anything the big four banks have done. How is this in the national interest???

Now that these people no longer have insurance, their accounts will be forcibly closed and transferred to the ATO if their balance is under $6K.

So when clients get upset and demand reinstatement of insurance to their super account, it will be the ATO's problem!

This raises two questions in my mind:
1. To what extent are people purposely using their superannuation to pay for their protection and is this the intent of superannuation. Will they be the same people who complain about how little they have when they retire and expect to rely on the pension (new form of double dipping)?

2. How many people have cover they are unaware of and as a result have their retirement savings eaten away?

Wouldn't a simple change Superstream to include insurance records allow the current fund to report to a member all their cover in all their schemes and ensure its needed and not excessive?

Most Australians are not doing anything purposely in relation to their super, other than purposely throwing every single piece of communication they get into the bin.

When they come to retire they will moan that insurance has eroded their retirement balance, they never knew they had it, and it's all someone else's fault. If they need to claim on insurance they will moan that their sum insured is not enough, they never knew it was so little, and it's all someone else's fault.

The solution is to make super and insurance completely separate.

Your questions are interesting and my interpretation of the implications you make are what I am replying to - I'll be happy to stand corrected if I don't understand you, but anyway:
1. depending on the life having their super pay for the life insurance, it will matter very little if their savings are eroded should they die - they wont be claiming Age Pensions either (if dead)
2. People may be unaware of what they have in super and what the attached insurances cost because its their own fault for not caring enough to find out for themselves!! We are in this mess, because the governments believe they can legislate for the people who doesn't give a toss about themselves - the govt wants to make it everyone else' problem!!
Finally, the simple change that's needed is for every single person who is can think for themselves, to start doing so and take responsibility for same - I am sick and tired of being blamed for my fellow citizen's lack of self-care.
If I have missed something please advise...
Best wishes

There is not a person, estate or a dependent on the face of the planet that when they died, were disabled, suffered a serious medical trauma or lost their ability to earn their income, ever looked back and said the amount of money they received from their insurance was too much.
It's time for every single politician, think tank, conflicted commentator, legal consumer group and expert to leave the determination of providing quality, appropriate risk insurance advice to those who have the knowledge, training and experience necessary to navigate this process with their clients and deliver technical knowledge,expertise and empathy at the point of claim resulting in significantly enhanced claims outcomes.
The recent legislation has been an absolute disgrace by the current Government.
It has placed individuals and families at financial risk.
Rather than constantly commenting about how much the insurance premium may be taking from retirement savings in superannuation funds, what about the Govt reduce the Contributions Tax of 15% to 7.5% immediately leaving more money in people's super accounts to assist in offsetting the cost of insurance that individuals deliberately wish to retain in their super fund ??
The Protecting Your Super legislation should have always been an Opt Out process and NEVER an Opt In process.
Contact consumers and notify them of the level and cost of their insurance cover and provide the facility to Opt Out of their cover if they so least hundred's of thousands of people would not have mistakenly or inadvertently lost their cover and who now realise they want it reinstated and did not intend to let it go.
The Govt continues to implement ridiculous legislation on a number of fronts because they are running scared from the RC and just cant think straight and logically.
They don't understand how this works at ground level and they should be utterly ashamed as to how grossly negligent this process has been.

I wonder if the Productivity Commission did the sums on what the impact will be on retirement funds as a result of insurance premium increases as a result of this stupid legislation?

I can see the lawyers doing very well on this is the future. Mark my words there will be "had an accident, every had super?" ads popping up very soon with the lawyers trying to claim clients were not adequately informed about their loss of insurance.

The next question from the Lawyers will be " did you or do you have an adviser" ?
Did they have a duty to ensure the insurance cover you had under your super account did not lapse as a result of this legislation?
Did your adviser contact you on numerous occasions in addition to the several contacts from the super fund and the public advertisements and announcements?
Did your adviser produce an advice document stating you should either retain the insurance or allow the deletion of the insurance to proceed ?
This will be the tip of the iceberg and guess who will be directly in the firing line of legal attack.
Enforced and negligently managed legislation resulting in unwanted adverse financial risk and the individuals who approved the legislation cannot be held accountable ?
What sort of era are we living in ?

This was always going to be a disaster, I have said that when beaurocrats get involve the nightmare will happen, Governments have no idea they don't understand our industry and the RC, wasn't that great a Lawyer who was supposed to investigate Banks, but managed to let them out the back door, but made sure he smashed all good advisors and their businesses and clients what an absolute joke.

Why are adult Aussie becoming more and more like babies - cannot look after ourselves - all the information is out there, WE ARE NOW WANTING TO BE SPOON FEED ALL OF OUR LIVES. Nothing is perfect in the world BUT get of you backside and start taking some responsibility for yourselves. I have a very small fund besides SMSF and still contribute to make sure I have Death Cover for my wife. Regards Ken

Why is loosing premium income a disaster?
On last count 4,500,000 accounts were listed as ATO held, with a further 790,000 attributed to persons no longer resident in Australia.
Then there were the 580,000 accounts held by funds where the member was not contactable.
Roughly 6,000,000 inactive accounts. It is difficult to believe that all these accounts existed to payout insurance in the event the member claimed on an insurance policy that was no longer valid because the person was no longer employed in the industry.

The 15%-25% of inactive/low balance accounts failing to opt in is way way off. You've either misinterpreted what you were told or asked the wrong person. I think you'll find for inactive accounts (who had to opt back in), the opt in rate has been 15%-25%. Meaning that's 75%-85% of inactives failing to opt in.

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