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Thursday, 14 February 2019
Page: 10339


Senator WHISH-WILSON (Tasmania) (18:34): I rise to talk to the treasury laws amendment that is in front of us today, the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018. An important feature of the life insurance market in this country is that life cover, total and permanent disability cover, income protection, and trauma cover are available not only through individual policies but also through group arrangements. Around 12 million Australians hold insurance for life, total and permanent disability cover, and income protection through their superannuation, with about 80 per cent of these policies provided automatically, currently requiring members to opt out or amend cover if it's unsuitable. Premiums vary widely, but in total have increased by 35 per cent over the last three years to $9 billion across this country—that's in the 2016-17 financial year.

The current settings in this industry are more a function of history than of considered policy design. The suitability of the insurance relies on trustees balancing cover for members against the erosion of account balances for retirement. Avoiding unnecessary balance erosion is a formidable task and is certainly something that the royal commission recently focused on. Many members benefit from lower costs and ready access provided by default group insurance arrangements in superannuation. These arrangements also potentially address an underinsurance problem. But as we in here all know, many entrenched problems remain. Interestingly, the Productivity Commission point out on page 11 of their report that nearly one-third of all member complaints against their fund are over their insurance arrangements. I think the critical heart of the problem, and what we are going to be debating tonight, is that these are exacerbated by a lack of awareness. Around a quarter of members don't even realise they have insurance.

Particularly for young workers either with no dependants, in the case of life insurance, or low incomes, in the case of income protection, insurance is poor value and doesn't meet their needs. Balance erosion can be highly, excessively regressive, having a disproportionate impact on members with low income, intermittent labour force attachment and/or multiple accounts with insurance, with is about 17 per cent of members. The reduction in retirement balances for many of these members could reach 14 per cent, according to the Productivity Commission—about $85,000 in current terms. For some disadvantaged members it could be reduced by over a quarter, or $125,000. Trustees, according to the Productivity Commission, should be required to annually determine the balance erosion trade-off for the members and publish it on their website. They also go on to say that some members have policies that are of little or no use to them, including zombie policies that cannot be claimed against income.

What does this bill seek to do, given this basic background? The treasury laws amendment bill before us tonight has three schedules, the purpose of which are to make amendments to the SIS Act. It limits the amount fees that can be charged by a trustee of a superannuation fund for MySuper or choice products to three per cent of the balance of the account if the balance is less than $6,000. In other words, it puts a cap on that value erosion that the Productivity Commission have brought to everyone's attention. It prohibits superannuation funds and approved deposit funds from imposing exit fees when a member disposes of all or part of their interest in a fund. It prevents superannuation funds from providing insurance, such as death cover, total and permanent disability cover, or income protection insurance, on an opt-out basis—which is the way it currently is—if the member is under the age of 25 years and begins to hold a new superannuation account on or after 1 July 2019, if the member's account balance falls below $6,000 or if the member's account has not received a contribution for 13 months and is inactive. We will be talking about that definition of 'inactive' shortly. It also requires savings account providers and superannuation providers to pay the balance of MySuper or choice accounts to the Commissioner of Taxation where the account is inactive and the balance is less than $6,000. And, finally, it requires the commissioner to consolidate any amounts received in a person's superannuation account that will have a balance of $6,000 or more once consolidated. More precisely, schedule 1 caps fees and costs at three per cent, schedule 2 prevents life insurance and super from being opt-out according to those criteria and schedule 3 requires the transfer of all inactive superannuation accounts to the ATO, which should create an incentive to super funds to ensure that people do not have multiple accounts and do not get charged excessive fees as a result.

The Greens believe that schedules 1 and 3 are largely acceptable, with only relatively minor issues of concern that we would like to see amended. We do have a problem with the premise of schedule 2, that people under 25 do not need life cover as they are less likely to have dependants and less likely to become permanently sick or injured. However, those under 25 who would most benefit from life insurance are likely to be the most vulnerable, have kids younger and/or be lower down the socioeconomic spectrum in Australia. Blue collar unions and associated industry super funds strongly support insurance being retained as opt-out for default funds.

My office and I have had consultations over many months with a number of stakeholders. I've met with the Grattan Institute, who have publicly said, through the submission process on this bill, that they support changing opt-out to opt-in. I've listened to their concerns and, of course, I've let them know that I disagree. I've also spoken to a number of other stakeholders across the spectrum, including many unions and industry super funds. All these views have been factored into our decision and our amendment here tonight.

There are also issues with the definition of 'inactivity', which applies to schedules 2 and 3. The main issue is that defining it at 13 months would inadvertently capture parents on parental leave. The other issue is that people might engage with their superannuation fund, for example, by changing their policy settings, yet still be considered inactive. So we'll be moving a number of amendments to deal with those issues tonight, and I plan to go through the detail of those amendments when we go into committee stage. I would like to flag that I will no longer be moving a second reading amendment. That won't be necessary.

It's very important that we understand that the level of financial literacy in Australia is very low. This is certainly something that we've all known in this place, especially those of us who have been involved over the years with the economics committee on numerous inquiries, many of them relating to the scrutiny of financial advice or the provision of financial advice. Even though I have a finance background myself and have worked in the industry, I'm often also very lazy and inattentive to my own details of my own financial circumstances. It's difficult to expect young Australians, particularly young Australians who may not have an education or background in finance and how it works, to be paying full attention to detail. This, of course, has been labelled in many circumstances as asymmetries of information, and it was a critical point that was raised by the royal commission.

The Greens do believe that the key problem with this bill is in schedule 2, in changing insurance from the provision for an opt-out, which means that basically you can choose to opt out. I agree there are many ways we can make it more effective to have policyholders know their information and choose to opt-out or opt-in, but we're going to change that tonight if you support the current bill to a provision of opt-in, which means that you need to actively go after people to make sure that they're aware of their circumstances. I believe that the universal provision of life insurance is a really good asset of the superannuation industry. It is a very important principle, the universal provision of life insurance, and we'd like to see that remain intact. The main effect of our amendments tonight will be to retain group insurance as opt-out for people with default superannuation, and we want to make the best tonight of what we believe is fundamentally philosophy-flawed legislation.

If superannuation has done nothing else, it has provided affordable life insurance to a much greater number of Australians. The original bill sought to pick apart the provision of life insurance through superannuation, without considering how it would impact on vulnerable people. While I certainly have a lot of time for John Daley and others—even the Productivity Commission—who believe that we should be moving to opt in, the decisions are often made on averages, rather than by looking at individual details. It may be that a small number of young people would be affected by this, but there are potential consequences, for example, for someone who is young and in a blue-collar industry and who is more likely to be running a ladder up the side of a house on the weekend. We are not talking about protection in the workplace here; we are talking about life insurance outside the workplace. This cohort of policyholders are at high risk of injury and death, and this at least gives them that cover. I do believe that hasn't been properly considered in this legislation. I think the old adage is also true that no-one needs insurance until they need it. While we have actuaries assessing those risks, we need to consider the potentially catastrophic implications for those who aren't covered through this system.

It is also important to note that this should not be the end point tonight for changes that need to be made to group insurance and super. Once again, Justice Hayne, through the royal commission, has made a number of recommendations, particularly around a review. I would like to note for senators that, for the money that was spent on the royal commission and the recommendations that were made, Justice Hayne didn't support the Productivity Commission's recommendation to change 'opt out' to 'opt in'. That wasn't a recommendation of the royal commission, which is what this legislation is planning to do tonight. Commissioner Hayne also recommended the development of a standard set of conditions for life insurance, and we support this. Of course, there should be a universal provision for life insurance through super. That should be one of those standard conditions.

I don't think it's any secret for me to say here tonight that the Greens believe that the role of government should be further explored, including whether the provision of life insurance should be nationalised and, if not, do the underwriting itself. We have been on record as saying that a number of times. Many successful countries around the world integrate life insurance with social security. More work needs to be done to ensure that life insurance is better provided, including through superannuation. We believe that while schedule 1 and 3 of the bill have some important aspects, if schedule 2 were amended to essentially remain with the status quo of an opt-out system, then we would be getting a better result for Australians, especially working Australians, and the most vulnerable cohort in this country. I will go through our amendments in more detail when we get to the committee stage. But I will say that if the bill here tonight is supported and our amendments are supported and passed, we will be voting for the third reading.