APRA Sees 'difficulty' In Labor's Superannuation Insurance Proposal

Australian Prudential Regulation Authority chairman Wayne Byres has signalled the regulator is reluctant to be given powers proposed by Labor and superannuation funds for the regulator to select which funds would be allowed to continue providing default life insurance.

Mr Byres told a Senate hearing on Thursday that the legislative amendments proposed by Labor and industry superannuation funds - to water down the government's push towards an opt-in life insurance system inside super to save consumers almost $3 billion - would be difficult to implement and probably require extra regulatory resources.

He indicated it would be complex for the prudential regulator to decide which funds and cohorts of members qualified for a carve-out from opt-in insurance.

APRA chairman Wayne Byres said Labor's proposed changes would be tough to implement. Miriam Steffens

"We would obviously do whatever we are tasked to do by the parliament, but it would be a complex piece of legislation to administer…. Some difficult judgments would be required," Mr Byres said.

Asked by Liberal senator Jane Hume if the amendments could put APRA in the position of having to decline life insurance applications of customers, he said: "That's at the heart of the complexity of the issues. Whether it is a job for us is for the parliament to decide."

Superannuation insurance legislation that passed the Senate last week cut fees for low balance accounts.

But the bill dropped the major reform; the government's proposal to eliminate default insurance insider super for people aged under 25 and account balances below $6000.

Labor, the Greens and most crossbench senators opposed the blanket opt in insurance proposal.

Opt-in life insurance was secured for inactive accounts, but the lion's share of the potential $3 billion in savings for consumers was not achieved.

Labor's proposed amendments 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.

Government sources said APRA has advised Treasury that it did not want the powers Labor proposed.

A source said APRA had said the power should be left to elected politicians and the regulator did not want to make arbitrary decisions on selecting funds, partly because it would risk a public backlash if a worker died and APRA had not allowed the super fund to provide default insurance.

Treasurer Josh Frydenberg this week has ramped up pressure on Labor and the superannuation and life insurance industries by introducing a new bill in the House of Representatives to commence proposed changes from October 1.

The bill is virtually no chance of passing the Senate before an expected May election, due to a lack of Senate sitting days and mixed views among crossbenchers.

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," Mr Bowen said.

Insurance claims statistics show that less than 1 per cent of members aged 25 claim on their life insurance within superannuation in a year, but super funds still default young members into insurance, ostensibly to collect fees and cross-subsidies older people.

APRA data have the government claiming that if Labor's proposed exemptions for opt-in life insurance were adopted, millions of super fund members aged under 25 would still be susceptible to account balance erosion by fees.

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 unnecessarily 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.

Mr Byres also backed separate "game changer" superannuation legislation to give APRA powers to "up the ante" to apply tough penalties for directors and trustees of superannuation funds who breach the best interest duty.

The bill will also enhance APRA's ability to give super funds directions.

"These are the two pieces of armory that have been missing in super. They are a game changer," Mr Byres said.

"That's been a major gap."

"While there has been a requirement there, there's been no sanction you could use when you felt there may have been a breach."


By John Kehoe & James Eyers

Financial Review

21 February 2019

#SelfManagedSuperFund #SMSF #APRA #Labor #Superannuation #Insurance

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