AIA Australia welcomes KPMG’s ‘Insurance in Superannuation’ report into the unintended consequences and significant financial impacts of the proposed Federal Budget reforms, including significantly higher premiums and a failure to address the issue of member balance erosion.
The KPMG analysis reaches a similar conclusion to a RiceWarner report commissioned by AIA Australia earlier this month, ‘Economic Impact of 2018 Federal Budget Proposed Insurance Changes’, which also raised significant concerns on the validity of the financial benefits of the proposed reforms and the impact of removing insurance cover for those who need it.
The KPMG report has found that the adoption of all proposed government reforms for young Australians and low balance or inactive accounts would be a 26 per cent rise in premiums for remaining insured members. The unintended consequence of this increase in premiums would be that members would be worse off at retirement with their balance to be eroded by a further 1.2 per cent.
AIA Australia and New Zealand CEO, Damien Mu, said: “We share the Federal Government’s intention to reduce the unnecessary erosion of retirement balances, but research conducted into this issue is demonstrating that the Australian public will be financially worse off under the proposed reforms. This is not an acceptable outcome even before we consider the serious health risks of being uninsured.”
“The government should not remove appropriate levels of protection or coverage for active, working Australians, nor should they distinguish between active members due to age or account balances, as these individuals are at risk, and they do have insurance needs as with other member cohorts. Instead, they should be focused on new measures for inactive accounts, which would achieve two-thirds of their targeted cost savings for members, while addressing the important issue of duplicate accounts.”
Members with active but low balance superannuation accounts do have insurance needs, with more than $75 million in claims paid by AIA Australia to these members in 2017. AIA Australia has also paid $84 million on 1,200 claims for members under 25 since 2015, with the rate of Income Protection (IP) and Total and Permanent Disability (TPD) claims approximately the same for people aged 20 and those aged 30. More than 600,000 young workers under 25 do so on a full-time basis, which is 42 per cent of the under 25 working population. Of those, almost half are full-time workers in blue collar jobs. If the proposed changes were adopted, workers in casual jobs and high-risk occupations such as mining and construction may be unable to attain life insurance, particularly for disability.