Rice Warner says the government’s proposed changes to insurance in superannuation may have “unintended consequences” and argued vigilance will be needed during implementation of the changes.
In a blog post, the company said it “generally supports” the proposals, made by government in the May budget announcement, to address the impact of multiple accounts, excessive life insurance premiums, and high fees relative to small balances often held by young people.
Rice Warner has previously raised these issues as areas of concern in a submission it made to the Productivity Commission’s review, which was released last week and which also addressed these issues.
The company acknowledged that addressing these issues was a positive step for fund members due to the changes Australia’s workforce has endured in the several decades.
“We generally support the objectives of the budget package,” the company said.
“The labour market has undergone significant changes since the introduction of compulsory superannuation. This and the endemic apathy of many younger members has resulted in people having unnecessary inactive accounts.”
However, the company also noted five areas that could be negatively impacted in unforeseen ways by the changes.
“Superannuation is complex, and it is not easy to apply these rules without [there being] some unintended consequences from the proposed legislation,” the company said.
“We have identified several issues with the government’s proposed package which we believe should be considered during the implementation process.”
- Difficulties establishing when to remove opt-out insurance cover as new members will be uninsured until they have a balance of $6,000;
- The small window of time funds will have to renegotiate their contracts with insurers;
- Some members being unable to replace their insurance outside of their super fund; and
- Difficulty implementing the 3 per cent cap on administration and investment fees, as it is designed as a 1.5 per cent cap on administration and investment fees on accounts with balances below $6,000 for the six-month period immediately following the date on which the balance is calculated.
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