Australia's Treasurer Scott Morrison delivered the annual Budget address yesterday in which he said that the government will stop superannuation funds from forcing young people under 25 or with low balances to pay for life insurance policies they have not asked for or do not need.
"These changes will protect the retirement savings of young people and those with low balances by ensuring their superannuation is not unnecessarily eroded by premiums on insurance policies they do not need or are not aware of," the government said.
Under the new regime, insurance will move from a default framework to an opt-in extra for those with balances less than A$6,000 (US$4,500); accounts that haven't received a contribution in 13 months; and members under the age of 25, notes Financial Standard.
The changes will also reduce the incidence of duplicated cover so that individuals are not paying for multiple insurance policies, which they may not be able to claim on.
Further to these measures, the government will also introduce a 3% annual cap on passive fees charged by funds on balances below A$6,000, and ban exit fees on all super accounts.
The government will also require the transfer of all inactive superannuation accounts where the balances are below A$6,000 to the Australian Taxation Office (ATO), the Budget address said.
"The ATO will expand its data matching processes to proactively reunite these inactive superannuation accounts with the member's active account, where possible. This measure will also include the proactive payment of funds currently held by the ATO."
The changes will take effect from 1 July 2019.
The Association of Superannuation Funds of Australia also issued a statement on the changes. ASFA chief executive Martin Fahy said insurance within super is "one of the most cost and tax effective options to provide protection, particularly for the young and low income earners."
"Many young people have dependents and financial commitments so in the instance of a tragic event occurring, particularly disablement early in life, having insurance in place is extremely valuable," Mr Fahy said.
"Moving to an opt-in model puts insurance coverage at risk for this segment."
Currently, two-thirds of Australians receive life cover through their superannuation funds.