Mr Frydenberg will ramp up pressure on Labor and the superannuation and life insurance industries by introducing a new bill in the House of Representatives on Wednesday to commence proposed changes from October 1.
Labor, the Greens and most crossbench senators oppose the blanket crackdown on default life insurance and there is virtually no time to legislate the change before an expected May election, meaning the bill is likely to become a so-called “zombie” measure.
Mr Frydenberg said he wanted to protect the “hard-earned retirement savings of millions of Australians” from “undue erosion through inappropriate insurance arrangements”.
“Recent data also indicates, of the around 11 million Australians with insurance in superannuation, around 2.5 million individuals have duplicate cover,” Mr Frydenberg said. “Of these individuals, over 10 per cent are under 25 years old.”
Separately, Mr Frydenberg wrote to the heads of the Insurance Council of Australia and Financial Services Council last week pressing them to swiftly implement the recommendations of the Hayne royal commission, including for general insurance “enforceable code provisions” for contracts between insurers and policyholder such as for cars and home contents.
Meanwhile, Labor’s proposed amendment sought to empower APRA to allow super funds to retain opt-out insurance for young people and people with low-balance accounts if the funds could demonstrate a cohort of workers were; at higher levels of risk; or needed affordable insurance because of a large number of children; or because it was a highly competitive insurance offer.
Nevertheless, the government-released figures showing that enabling REST to retain default insurance would mean up to 650,000 accounts belonging to people under 25, or 32 per cent of accounts of REST members, would be susceptible to erosion by insurance premiums.
If HostPlus was granted a carve out, up to 300,000 accounts belonging to young members, or 24 per cent of all its accounts, would be unneccesarily defaulted into insurance.
CBUS would maintain charging default insurance premiums to 120,000 accounts for under 25s, equal to 15 per cent of its accounts.
Shadow treasurer Chris Bowen said last week that Labor wanted to improve the bill.
“The whole point of Labor’s amendments was that APRA would only act when they were convinced it was in the best interests of members,” he said.
Data released by the government citing recent analysis by consultant Rice Warner purports to show some members under 25 are paying over 300 per cent of their true premium for death and total and permanent disablement (TPD) insurance cover.
A slimmed-down superannuation bill passed the Senate on Thursday night, after the Morrison government cut a rare deal with the Greens on superchanges to reduce fees for low-balance accounts and return $6 billion in lost super money to people.
The government said the scrapping of exit fees and a cap on fees of 3 per cent on account balances below $6000 would save about seven million Australians $570 million in the first year.
The Association of Superannuation Funds of Australia chief executive Martin Fahy said last week that the government’s carve out of young people from group insurance that was originally proposed “would have had an impact across the board, but particularly on those in high risk occupations and for those young people with dependants.”
“There is clear evidence that insurance in superannuation is one of the most cost and tax-effective options to provide protection, particularly for the young and low-income earners,” Dr Fahy said.
“Many young people have dependants and financial commitments so in the instance of a tragic event occurring, particularly disablement early in life, having insurance in place is extremely valuable.”