Simpler super has unintended insurance consequences

The Government’s simpler superannuation initiatives have created inconsistencies that could result in people ending up with low or inadequate levels of death and total and permanent disability (TPD) insurance cover, according to financial services consulting firm Watson Wyatt.

Watson Wyatt Australia director and head of actuarial and employee consulting Brad Jeffrey said the inconsistencies had arisen because the Government had concentrated on retirement benefits paid by superannuation funds, but had not applied the same scrutiny to the other benefits that funds provide, such as death and disability benefits.

He said the anomalies bedevilled the new regime because the Government’s superannuation reform legislation did not think things through in every case.

“While some inconsistencies have been removed, others have been left in place or have only become apparent as a result of work done since the last Budget reforms,” Jeffrey said.

Watson Wyatt has called on the Government to remove the tax inequalities that have emerged with respect to insurance premiums for death and TPD cover, whether they are provided by a superannuation fund or an employer.

“By taking this extra step, the Government will move much closer to truly being able to say that it has delivered a ‘simpler super’ environment,” Jeffrey said. “More importantly, it will allow employers the opportunity to ensure that their employees also have adequate insurance coverage.”