Australians have been warned to check their superannuation balances after severe increases in insurance premiums come into effect by the end of the year.
Funds have blamed government legislation designed to sweep away inequities in the super system for the increases in premiums, which can range from double-digit increases on death and disability cover to more than 60% for income protection insurance in some schemes.
But with millions of workers not regularly checking their super accounts for new fees and charges, consumer advocates have warned that people could be paying for expensive cover that they do not want or need.
Unisuper, for example, the fund for higher education, increased its combined death and total and permanent disablement (TPD) cover by up to 17.8% at the beginning of this month.
A 51-year-old man saving in the fund would see his weekly premium increase from $4.12 to $4.67 for $100,000 worth of death and TPD cover, Unisuper said, a rise of 13%. A woman in her late 30s with $181,000 of death and TPD cover would find herself paying $2.08 a week, an increase of 12%.
Australian Super premiums rose by around 20% in May for members who are insured for income protection, although that figure is 25% for younger members of the scheme. Members of Media Super are facing a hefty 62% increase for income protection insurance in December, taking monthly premiums to more than $100 for older members.
The Australian Financial Complaints Authority said the issue, which was affecting industry and retail super funds, had led to an increase in complaints from consumers who say they did not know they had insurance, did not want insurance and therefore have requested a refund of the premiums paid.
Xavier Halloran, a director at the consumer campaign organisation Choice, said the increases were a red flag for super members everywhere.
“These increases are a timely reminder for people to check if they have insurance in super, what they are paying, what benefit it offers and under what circumstances it will pay out,” he said.
“For example, people might be surprised to find that income protection generally provides cover for temporary disabilities and not as the name might suggest for any loss of income.”
Although many super members may be angered by seeing more money going into fees instead of their retirement savings, the increase in premiums is the result of an industry and government attempt to make the whole system fairer.
The royal commission into the financial services industry highlighted many anomalies such as how people with multiple dormant super accounts could be paying insurance on each account, even though they would only be able to claim on one policy.
The Putting Members’ Interests First legislation that came into effect in April 2020 applies to people under 25 and those with accounts with less than $6,000 and means they can opt out of paying insurance on all but one account. But the effect has been to greatly reduce the number of people paying super insurance, therefore forcing insurers to increase premiums paid by other members.
Data from the Australian Prudential Regulatory Authority shows that there has been a 15% decrease in people paying insurance within super accounts, placing more pressure on remaining clients.
“Superannuation funds have been putting a lot of these recently announced price increases down to changes which saw people no longer paying for insurance on duplicate, inactive accounts or in situations where cover may have been inappropriate [for example people who are unemployed],” Halloran said.
“Overall the changes are much fairer as less people are paying for policies they can’t claim on.”
Kirby Rappell, from the industry research group SuperRatings, said it was a big challenge for the industry to get people to engage more and understand more about their super arrangements. About 25% of people with income protection insurance did not know they were paying premiums for it, he said, because in many funds members had to comb the small print and opt out of the payments.
“This is around the time of year when funds send out annual statements to members,” Rappell. “Ask yourself, do I have insurance? Check your annual statement and that will tell you what insurance you have and how much it’s costing you.”
Nick Kirwan, senior policy manager for life insurance at the Financial Services Council, which sets mandatory standards for the industry, said it was the role of fund trustees to ensure that the cover offered to members achieved a balance between providing meaningful cover and affordability.
However, he said that the pandemic had seen a deterioration of mental health in Australia and that had led to more claims.
“Premium increases are never welcome, but there is a direct link between the total amount paid out in claims and the cost of premiums, and claims have been increasing significantly, especially for mental health conditions,” he said.
“Unfortunately, the Covid pandemic is likely to mean that more Australians will experience mental health conditions from the effects of job losses, isolation and financial hardship and this is placing upward pressure on premiums.”
