Why has the ALA called for more TPD safeguards in super reforms?

Published 01 Aug 2018

Earlier this year, the Productivity Commission published a draft report into the superannuation industry. In the document, the organisation slammed a number of current practices within the sector, including ‘zombie’ insurance policies, complex and incomparable products, and poor complaint handling.

The commission made several recommendations to improve the country’s super system. However, the Australian Lawyers Association (ALA) has since submitted a response that objects to some of the proposals.

Specifically, the ALA feels some changes could adversely affect fund members’ access to total and permanent disability (TPD) insurance.

TPD and life insurance within superannuation

Most employees have some form of life insurance integrated into their super fund. TPD cover is designed to pay out when an individual suffers a serious injury or illness that prevents them from ever returning to the workplace.

The federal government is looking to remove default TPD and life insurance for new superannuation members aged under 25, as well as those with balances under $6,000 or inactive accounts. Instead, an opt-in model would be available – a move the Productivity Commission supports.

But the ALA believes the measures could leave vulnerable Australians without crucial TPD cover when they most need support. This is particularly true for people with extensive medical histories or young employees working in hazardous industries such as construction.

“Young people who are sick, injured or chronically ill have long-term exposure to the additional cost of disability, such as medical costs [and] home modifications,” the association stated.

The risks of consolidation

Opt-in TPD insurance wasn’t the only issue the ALA had with superannuation reforms. The organisation also urged caution regarding the consolidation and/or removal of duplicate super accounts.

Employees often create multiple unintended super accounts over their working life when they move jobs, which the Australian government has emphasised as a key problem. Consolidating these accounts and fixing other structural flaws could deliver an extra $3.9 billion to savers each year, the Productivity Commission found.

However, the ALA said transferring super members over to different funds in an effort to minimise the number of accounts could leave people with insurance that is poorer quality or more expensive. This could leave gaps in their coverage if they ever need to claim.

TPD insurance can be difficult to understand, particularly if you have different policies across multiple accounts. Please speak to Gerard Malouf & Partners Superannuation Lawyers if you would like to make a claim against your TPD cover.

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