AustralianSuper to stop automatic insurance for young Australians
AustralianSuper will be the first fund to allow members to opt in to insurance, rather than out.
Australia's largest super fund AustralianSuper today announced it will drop automatic insurance for young Australians under 25 years old. In an industry first, young members will be able to opt in to insurance instead of automatically receiving it when they join the fund.
AustralianSuper’s group executive of membership, Rose Kerlin, said the move is a bid to stop the superannuation balances of young members from being eaten away by potentially unnecessary fees and charges. The initiative will make the system fairer as well as simpler for its 150,000 members under the age of 25 as well as new members under this age.
"AustralianSuper has made this decision in the best interest of our members. 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. But we also want to stress that members under 25 will still be able to choose to have insurance if they want it and cover will start automatically when they are 25," said Kerlin.
"With people getting married or having kids later in life we need to adjust our assumptions of what people need at various stages in their life. AustralianSuper’s experience is that for claims paid for members under 25, only 10% are paid to financially dependent spouses or partners and children."
As part of the change, from November 2018, death and total and permanent disability insurance will be automatically added to a member's fund only when they reach the age of 25, which is currently the case for the default income protection insurance. According to AustralianSuper, for a member joining the fund when they're 15, this initiative will increase a member's retirement balance by nearly $9000.
There's also good news for older members, as the Fund also announced it will be reducing insurance premiums by up to 21% from October this year. "Insurance is a vital part of super and the Fund only provides it to benefit members, we receive no financial benefit by offering it," said Kerlin.
This initiative comes at a time when the Insurance in Superannuation Working Group (ISWG) is looking into the issue of account balance erosion and how to protect members' best interests with insurance in super. In March this year, corporate watchdogs ASIC and APRA said they will be keeping a close eye on the role of default insurance in superannuation and the relationship between funds and insurance providers.