The Productivity Commission has recommended both the government and the superannuation industry take further action to minimise the impact of balance erosion caused by group insurance arrangements.
In its Superannuation: Assessing Efficiency and Competition draft report, the Productivity Commission (PC) said the superannuation balance erosion caused by group insurance is “not insignificant” and that more needs to be done to fix this problem.
Further, the PC noted that recent efforts by the industry to rectify the problem “while welcome, are limited” in their capacity to assist.
“While initiatives taken by industry to date are a step in the right direction and the industry code of practice offers some limited prospects for improving member outcomes, more work is needed,” the report said.
The PC recommended that the government form a joint task force comprising members from both APRA and ASIC to enforce the code of practice proposed by industry members, and supported the idea that group insurance should be moved to an ‘opt-in’ arrangement for members under the age of 25.
Further, the PC suggested that the government review the appropriateness of the current ‘opt-out’ model more generally and specify other cohorts where an ‘opt-in’ model might be more appropriate, such as for members with low account balances.
An independent review should also be established within four years of the completion of the PC’s inquiry to look into insurance in super arrangements and evaluate the initiatives taken by industry players and assess whether further action is necessary, the PC proposed.
“This would provide an opportunity to review progress and the need for further policy interventions in the absence of meaningful remediation of unnecessary balance erosion and inappropriate insurance products for members,” the report said.
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