Super overhaul to assist young
YOUNGER Australians will have more money in their retirement kitty after a drastic overhaul of the superannuation system that will see them better off later in life.
One of the nation’s largest superannuation funds, AustralianSuper, has revealed it will scrap automatic insurance for new members under the age of 25, which is tipped to deliver them an additional $ 9000 come retirement.
Under the changes new members will be required to “opt in” to insurance rather than automatically receiving it when they sign up but it will not impact existing members.
The Insurance in Superannuation Working Group – backed by industry and retail funds – has been investigating many issues and identified balance erosion as a key concern.
AustralianSuper group executive of membership Rose Kerlin said for younger Australians kickstarting their working careers, paying costs in unnecessary insurance in their younger years, when they were unlikely to make a claim, would hinder their balances come retirement.
“When people under 25 start out in the workplace they really need to start building that base for their retirement savings and what we were worried about was undue account erosion,’’ she said.
“We looked at all of our claims and we looked at insurance that could be of limited value.”
The overall saving for a member joining the fund at 15 is $ 637 and this amount will accumulate in compound interest to about $ 9000 by retirement at 65. AustralianSuper has 150,000 members under 25 and each year only about 20 claims for total and permanently disability ( TPD) are paid out.
Association of Superannuation Funds of Australia chief policy officer Glen McCrea said while insurance through super was important, “fund members and funds need to consider whether what they are offering is suitable for their particular membership”.
“We note that a variety of funds are adjusting insurance arrangements in order to get the right balance for their members between saving for retirement and having insurance cover during working years,’’ Mr McCrea said.
Ms Kerlin said compulsory insurance which covered death or TPD claims primarily benefited people who had dependants or financial commitments and just 10 per cent of the 20 claims made was used by partners and spouses or children.
The fund did not make revenue from insurance because its profits went back to members. Changes will be implemented from November 2018.