Senate inquiry to examine insurance and the retirement system, including advice

This week, the Senate referred an inquiry into improving consumer experiences, choice, and outcomes in Australia’s retirement system to the Senate economics references committee, which will examine insurance within the retirement system.

The inquiry is due to report by 30 June 2024; however, the closing date for the committee receiving submissions has not been determined and it is not yet accepting submissions.

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In a statement, Senator Andrew Bragg, the chair of the Senate economics references committee, said the inquiry would look into how to “better align insurance with the outcomes Australians expect throughout their life cycle”.

“The 2023 Intergenerational Report projects a 70 per cent increase in per capita expenditure on aged care over the next 40 years. Our inquiry will examine the merits of an aged care insurance product to futureproof our aged care system,” Mr Bragg said.

“In addition, the inquiry will examine how to improve customer experiences and choice in insurance.

“Over the last 12 months, complaints about death benefits offered by super funds rose by 136 per cent. There is a systemic problem with these products, which the government has failed to address.

“We must ensure that both the legal architecture and industry practice are fit for Australia’s future.”

The inquiry’s terms of reference note that it will look into “policy options to support greater choice and quality of life in the retirement income system, including but not limited to the aged pension, financial advice, home ownership and downsizing, and insurance”.

Other areas it will examine include:

• Regulatory and tax impediments to innovation and uptake of insurance products in retirement.
• The economic costs and opportunities of innovation in our retirement income system.
• The interaction of health insurance, life insurance, general insurance, and social security supports to retirement outcomes, including options to improve incentives that drive consumer outcomes and support the sustainability of the retirement income system.
• The potential role of fintech platforms, technologies, and innovations in supporting better retirement outcomes.
• Progress on implementing the retirement income covenant.
• The impact of climate change on insurance premium affordability and accessibility.
• The impact that climate change is likely to have on insurance premiums for products including life, home and contents and small business.
• The impact of climate change on the value of assets (e.g. houses, investments) of retired people.
• Any other related matters.

Back in August, ifa learnt that Treasury was planning to release a consultation paper to strengthen the accessibility of retirement products, a paper which would canvass problems with financial advice among other things.

“Half of retirees draw down the minimum and, on average, people who draw down the minimum will still have about a quarter of their super remaining when they pass on,” Dr Jim Chalmers said on a roundtable hosted by The Australian Financial Review at the time.

“What that really means is people are living more frugally than they need to. There’s not enough confidence in their balances, there’s not enough diversity or flexibility in products in the market or literacy or advice or strategies to match people with these products.”

Commenting on the government’s intention to probe Aussies’ unwillingness to spend their super, chief executive officer of the Financial Services Council (FSC) Blake Briggs, said at the time: “Eight hundred Australians are retiring every day, and the government is right to prioritise action to make sure these consumers can choose from a range of products consistent with superannuation’s promise of delivering income for a dignified retirement.

“The retirement income covenant requires superannuation funds to formulate strategies to optimise retirement outcomes for members, however, the FSC believes this framework will be more successful if the government removes regulatory barriers that are inconsistent with the covenant.”