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Attachment
Government Response to the Review into the Governance, Efficiency, Structure and Operation of Australia's Superannuation System

Chapter 5: Insurance in superannuation

Recommendation 5.1

Life insurance cover and TPD cover (where available, depending on occupational and demographic factors) must be offered on an opt-out basis in MySuper products.

Government response

Support

MySuper products will be required to offer life and TPD cover (where available, depending on occupational and demographic factors) on an opt-out basis. The Government will consult further on implementation of this recommendation.

Recommendation 5.2

The requirement for a minimum level of life insurance that must be offered by eligible choice funds as set out in Regulation 9A and Schedule 1 to the Superannuation Guarantee (Administration) Regulations 1993 should be repealed.

Government response

Do not support

The Government considers that choice trustees should offer life and TPD insurance, on an opt-out basis, and will consult further with relevant stakeholders on this issue.

Recommendation 5.3

Trustees of MySuper products, and trustees of large APRA funds that offer insurance, should have a statutory duty to manage insurance with the sole aim of benefiting members, including:

  • selecting insurance cover with regard to the cost and value for money for members;
  • negotiating the terms of the insurance contract, including adequacy of the level of default cover; and
  • pursuing claims that the insurer has denied in part or in total where there is a reasonable expectation of success.

Government response

Support in principle

The Government considers that the trustees of all large APRA-regulated funds (including those funds offering a MySuper product) should manage their insurance to benefit members, but will consult with relevant stakeholders on design and implementation issues.

Recommendation 5.4

The SIS Act should be amended to require trustees of MySuper products, and large APRA funds that offer insurance, to devise and implement an insurance strategy specifying the types of insurance to be offered and the default and permissible maximum levels of cover to be offered.

Government response

Support in principle

The Government considers that the trustees of all large APRA-regulated funds (including those funds offering a MySuper product) should have an insurance strategy, but will consult with relevant stakeholders on design and implementation issues.

Recommendation 5.5

APRA should issue guidance material to trustees to help them in developing an insurance strategy.

Government response

Support in principle

The Government will refer the recommendation to APRA for consideration.

Recommendation 5.6

In the choice sector, trustees should be allowed to offer life and TPD insurance on an opt-out or opt-in basis, or not at all.

Government response

Support in principle

The Government considers that choice trustees should offer life and TPD insurance, on an opt-out basis, and will consult further with relevant stakeholders on implementation of this recommendation.

Recommendation 5.7

The Superannuation (Resolution of Complaints) Act 1993 should be amended to allow the SCT to consider complaints in respect of TPD claims when the claim has been lodged with the trustee within six years of the member ceasing employment and the complaint has been made to the SCT within two years of the trustee's decision.

Government response

Support in principle

The Government notes that time limits may affect claims and will consult with relevant stakeholders regarding appropriate limitation periods in which trustees and insurers can be liable.

Recommendation 5.8

The SIS Act should be amended so that the trust deed of a large APRA fund is deemed to define total and permanent disablement in the same way as the insurance policy held by the trustee at the relevant time.

Government response

Do not support

The Government considers that changing the definition of total and permanent disablement could affect member entitlements. This recommendation was aimed at assisting successor fund transfers, which the Government will consider further in work underway on product rationalisation.

Recommendation 5.9

Income protection may be offered on an opt-out or opt-in basis, or not at all by trustees of MySuper or choice funds.

Government response

Support in principle

The Government supports income protection being offered on an opt-out basis to members of APRA-regulated funds and will consult further with relevant stakeholders on implementation of this recommendation.

Recommendation 5.10

Apart from life, TPD and income protection insurance, no other type of insurance (for example, trauma insurance) should be permitted to be paid for by members through their superannuation and any existing policies outside those categories should be phased out.

Government response

Support in principle

The Government will consider this recommendation further and will consult with relevant stakeholders.

Recommendation 5.11

Trustees of large APRA funds should be required to publish on their websites the terms and conditions applicable to each type of insurance offered by the fund, along with other information relevant to members, including:

  1. a plain English explanation of the policy terms;
  2. premium tables showing the gross premium charged for each category of member (if relevant) at each $1,000 of cover at current age with a standard frequency of payment. Any additional cost associated with the insurance should be noted as part of this disclosure; and
  3. TPD claim success rate on a basis to be determined after consultation with the industry.

Government response

Support in principle

The Government will consider this recommendation further and will consult with relevant stakeholders.

Recommendation 5.12

Up-front and trailing commissions and similar payments should be prohibited in respect of any insurance offered to any superannuation entity, including to SMSFs, regardless of rules on commissions that might apply outside superannuation.

Government response

Noted

Trustees of MySuper products will not be able to pay premiums for insured member benefits that include commissions in relation to the group insurance product. The Government is considering this recommendation further in consultation with the industry through the Future of Financial Advice process.

Recommendation 5.13

MySuper trustees should pro-actively offer intra-fund advice to members in relation to their insurance in MySuper.

Government response

Noted

The Government will consult with relevant stakeholders on whether MySuper products should be required to offer intra-fund advice to members in relation to their insurance, and the appropriate timing of any change.

Recommendation 5.14

The SIS Act should be amended so that binding death nominations would be invalidated when certain 'life events' occur in respect of the member. The current systems used by States and Territories under which testamentary dispositions are invalidated could be used as guidance for creating a single national model.

Government response

Support in principle

Given the disparity of State and Territory approaches to the invalidity of testamentary dispositions, the Government will consider this recommendation further and consult with relevant stakeholders.

Recommendation 5.15

Subject to recommendation 5.14 being implemented, the SIS Act should be amended so that binding death benefit nominations only have to be reconfirmed every five years.

Government response

Support in principle

The Government will consider this recommendation further and consult with relevant stakeholders.

Recommendation 5.16

After a suitable transitional period, self-insurance of any fund benefits, including death and TPD benefits, should not be permitted in any large APRA fund except defined benefit funds (or sub-plans) that are currently allowed to self-insure.

Government response

Support in principle

The Government considers that self-insurance creates risks for the ability of APRA-regulated funds to meet member claims and should generally not be permitted but will consult with relevant stakeholders on design and implementation issues.