The nation’s biggest superannuation fund has moved to ensure under-25s no longer have insurance premiums taken from their retirement accounts unless they ask for it to happen.
Australian Super is the first major super fund to make insurance an “opt-in” for younger workers rather than an automatic inclusion, potentially saving them thousands of dollars over the life of an account.
The decision follows an inquiry by the Insurance Superannuation Working Group earlier this year, which showed that an overload of unnecessary insurance within superannuation risks a “rapid erosion” of some retirement nest eggs.
Australian Super’s group executive for membership, Rose Kerlin, said the decision to allow under-25s to “opt-in” came after concerns that default insurance premiums are sometimes working against the long term interests of young workers.
“Australian Super has made this decision in the best interest of our members,” she said.
“People under 25 starting out in the workforce need to begin building a base for their retirement savings.Given that they are often on relatively low incomes, the fund does not want to see undue account erosion because of insurance that may actually be of very limited value to them.”
Australian Super — which manages $120 billion of retirement funds — has crunched the numbers and estimates that the exclusion of insurance premiums before turning 25 would save members an average of $9,000.
Ms Kerlin says the insurance component is mainly of benefit for people with dependents and financial commitments, such as a mortgage, who might be exposed to death or permanent disability.
Automatic insurance would apply to members over the age of 25, who would still be able to opt out if they wish.
“We want to stress that members under 25 will still be able to choose to have insurance if they want it,” Ms Kerlin said.
However, questions remain as to the usefulness of many insurance policies in superannuation funds, including for older workers.
An investigation by ABC TV’s The Business earlier this year revealed that many casual workers are unable to claim on the policies they are paying for, while many policies do not cover everything that many people would expect them to.
“The industry is united in bringing forward to address a series of issues including some people have too many insurance accounts,” Mr Minto told the ABC.
“I think all these moves that help benefit members and consumers are to be welcomed.”
The working group is scheduled to release its draft code of conduct for superannuation funds later this week.
Pressure for greater disclosure on insurance within superannuation comes as the Federal Government cracks down on the sector to ensure rogue employers pay the correct contributions and moves to shake up the governance of super fund trustees.