Changes to the superannuation rules in the budget risk leaving millions of young workers exposed and uninsured against accident and illness, superannuation industry figures say.
Under the move, insurance cover in superannuation will be offered only on an “opt-in” basis for all new members under 25 and, as a result, many are likely to not take up cover.
That measure is based on the idea that young people are healthy and have few commitments, so don’t need to pay insurance premiums. But that can be a dangerous assumption.
“Many young people have children, mortgages, health and educational expenses that will not go away if they find themselves unable to continue to provide for their family,” said Andrew Howard, interim CEO of REST Super.
About 32 per cent of REST’s 1.4 million members, or 448,000 people, are under 25. They are mainly employed in the retail industry.
Cbus, the super fund for the high-risk building industry, is also concerned, with CEO David Atkin saying opt-in could mean young members are left without support in the event of injury.
“While we will await further detail around the government’s announcement, we are concerned that it could leave hundreds of thousands of construction and building workers’ without insurance,” Mr Atkin said.
“The fact is that if it wasn’t for group insurance provided through Cbus, due to the high-risk nature of their work, many of our members wouldn’t be able to access insurance at all,” Mr Atkin said.
“We strongly support sustainable and affordable default insurance arrangements because we know the value and peace of mind that it provides to our members and their families,” he said.
Not only are building workers exposed to risks on the job, but even younger workers are likely to have commitments.
“We also know that the majority of our members have dependents from around the age of 21, so providing insurance cover is important for their families as well as them,” Mr Atkin said.
ASFA chief executive Martin Fahy believes that an opt-in for younger workers means that they will likely leave the insurance system regardless of the level of risk in their jobs.
“Moving to an opt-in model puts insurance coverage at risk for this segment,” he said.
The new provisions will rope in almost all 2.6 million young workers. Research from QSuper and prudential watchdog APRA shows that under-25’s have 11 per cent of all Australia’s 24 million superannuation accounts and that their average balance was $5588 late last year.
This creates another potential way to lose insurance, as all accounts with less than $6000 will have to opt in to insurance, regardless of member age.
Young people should think carefully about insurance in super, according to Marc Bineham, president of the Association of Financial Advisors.
“I can see why the government thinks it’s a good idea, because if you’re young and have no commitments, it helps build a larger super balance.
“If you have debt, like a mortgage or credit card that will become the responsibility of someone else if you die, then you should opt in.
“Life insurance is not necessary if you don’t have a family, but remember that life policies have total and permanent disability cover attached to them [too].
“It’s rare, but people under 25 can have accidents, particularly young men, that can leave them incapacitated for life. Remember, you can’t take up TPD insurance without life insurance,” Mr Bineham said.