AustralianSuper members under age 25 are no longer given insurance automatically when they join the fund in a bid to stop account erosion and make the system simpler and fairer for young members.
In an industry first, younger fund members will be able to opt in to insurance rather than automatically receive it when they join.
AustralianSuper’s Group Executive of Membership, Rose Kerlin, said the fund made the move after extensive analysis and feedback on the impact of automatic default insurance premiums on the erosion of account balances of young people.
“AustralianSuper has made this decision in the best interest of our members,” Ms Kerlin said.
“People under 25 starting out in the workforce need to begin building a base for their retirement savings. Given that they are often on relatively low incomes, we don’t want to see undue account erosion because of insurance that may actually be of very limited value to them.
“But we also want to stress that members under 25 will still be able to choose to have insurance if they want it and cover will start automatically when they are 25.”
Ms Kerlin said insurance is primarily of benefit to people who have dependents or financial commitments that may be affected as a result of death or total and permanent disability.
“With people getting married or having kids later in life, we need to adjust our assumptions of what people need at various stages in their life,” Ms Kerlin said.
“AustralianSuper’s experience is that for claims paid for members under 25, only 10% are paid to financially dependent spouses or partners and children.”
The overall saving of this initiative, based on current prices, for a member joining the fund at age 15 is $637. This amount accumulated to retirement at 65 will increase the member’s retirement balance by nearly $9,000, or nearly $1,600 in today’s dollars.
The changes means that default death and total and permanent disability insurance will, from 27 October 2018, be in line with default income protection insurance which starts for AustralianSuper members at age 25.
The move by AustralianSuper addresses one of the key issues being looked at by the Insurance in Superannuation Working Group (ISWG).
“The ISWG has identified account balance erosion as a key issue, and as a fund we are determined to address it,” Ms Kerlin said.
“The ISWG has made important progress on a Group Insurance Code of Practice which is aimed at protecting members’ best interests when it comes to the provision of insurance through super.”
You can read more about the changes and how they impact younger AustralianSuper members at australiansuper.com/under25faqs