Super funds expect 600,000 to withdraw $10,000

21 April 2020

Major superannuation consultancy, Deloitte is expecting around 600,000 of the 800,000 people who have signalled their intention to gain early access to their superannuation on hardship grounds to follow through but has repeated warnings about the implications for their insurance inside superannuation.

Deloitte’s head of superannuation, Russell Mason, said the Government’s move to provide early access to superannuation was well-intentioned but had significant unintended consequences.

He said the problem stemmed from the fact that more than 800,000 people had made enquiries with their superannuation fund to withdraw up to $10,000 from their account as a result of unemployment or reduced working hours, which the industry now expected to translate to 600,000 people following through.

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“For many people, particularly new entrants to the workforce, casuals and part-timers, this could mean reducing their account balance to $0.  And if they have no account balance, their death and disability insurance will cease, leaving them with no cover. This is significant,” Mason said.

“Should a member who has reduced their balance to $0 die or becomes disabled, they or their dependents will not receive a benefit, potentially causing an even worse financial situation for them,” he said.

Further, Mason said that even when that individual was re-employed or returned to normal hours as a result of new legislation, their insurance would not automatically be re-instated until their balance reaches $6,000 meaning that for casuals or part-timers they could remain uncovered for two to three years.

“This clearly has been an unintended consequence of the Government’s attempt to help those in financial distress. The problem is it may actually cause an even worse financial outcome,” Mason said. “We suspect that most people who withdraw their super will not have considered the impact on their insurance or even be aware of the implications.”

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What garbage. The recently implemented PYS and PMIF rules are specifically intended to remove insurance from younger, casual, and disengaged members. There has been very clear policy intent from the government that the only people who should have insurance in super moving forward are those who actively choose to, and manage their arrangements accordingly.

If early release of super hastens this outcome it would be entirely consistent with government policy, not a problematic unintended consequence. Anyone who wants insurance should be actively doing something about it. They should never be passively relying on default arrangements in super. That has always been a haphazard arrangement, which has done more to line the pockets of ambulance chasing lawyers than to properly insure consumers. The sooner default insurance is removed from super the better.

Agreed. Anyhow, as soon as they start working again, their new fund will kick start their default insurance cover up again anyhow. Default insurance is just another racket to help pay the salaries of the Union Super intra-fund marketing reps.

Is the insurance in force if they are unemployed?

Have these members been clearly notified that if they are unemployed their TPD definition may well change to an Activities of Daily Living definition or worse or potentially not active at all in respect to a potential claim ?
Imagine the numbers of an industry cohort that has been significantly affected and that may be all members of a particular industry fund that are now unemployed but who still have insurance cover in place and are still paying premiums from their account.
Some of these members will have Group Salary Continuance and TPD Insurance that may possibly be ineffective if a claim were to arise during a period of unemployment.

So you're telling me ISA is lobbyig gov so people can keep paying for insurance that wont pay out a claim anyway? (Remember the royal commission where the industry fund denied a TPD claim even though the retail insurer paid it?) Who's best interest is this in? Are super funds doing it simply to continue to receive their commission from the insurer? Sounds like a big story.

Death/TPD probably would be. Income protection probably wouldn't. Not many super funds offer default IP though.

That's why there used to be so many disputed TPD claims. People without IP insurance tried to claim for IP situations via their default TPD, even though they didn't meet the TPD definition. Many of the "unfairly treated" claimants in Adele Ferguson's Four Corners story were trying this on. Since that media hatchet job however, insurers tend to pay rather than dispute many more of those claims, which is why consumers have been slugged with massive TPD premium increases. Thanks Adele.

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