Australia Aims To Protect DC Plans From Insurance Erosion | Mercer

Australia Aims To Protect DC Plans From Insurance Erosion

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Australia Aims To Protect DC Plans From Insurance Erosion
Australia Aims To Protect DC Plans From Insurance Erosion
Calendar18 July 2019

Members of defined contribution (DC) plans in Australia who join under age 25 or have low-balance accounts of less than AUD $6,000 would have to opt in for insurance protection under the Treasury Laws Amendment (Putting Members’ Interests First) Bill 2019. As resubmitted by the Australian government, the proposals — which aim to avoid the erosion of retirement savings through inappropriate insurance — replace an earlier bill that lapsed due to the dissolution of parliament in April.

Highlights of the Bill

Opt-in requirements. Trustees could no longer require certain members who fulfil the eligibility criteria to opt out if they don’t want insurance coverage for a MySuper product or a Choice product. Under the bill:

  • New members joining on or after 1 Oct 2019 would have to opt in for insurance coverage until the later of (i) they reach age 25, or (ii) their balance first reaches $6,000 or more.
  • Members joining before 1 Oct 2019 would have to opt in to maintain their insurance coverage if their balance has stayed below $6,000 since 1 Jul 2019.
  • Funds would have to notify their members with default coverage that their insurance will be cancelled if their balance is less than AUD $6,000 from 1 Jul 2019 to 30 Sep 2019. Members then would have to opt in to maintain their coverage.
  • Insurance coverage for accounts with a minimum AUD $6,000 balance on or after 1 Jul 2019 wouldn’t be cancelled if the balance later falls below the threshold.

Default insurance. Default insurance coverage would be required for a MySuper product or permitted for a Choice product for members who meet either of these conditions:

  • Members of any age who join a plan before 1 Oct 2019, and whose account has had a minimum balance of AUD $6,000 at any time after 1 July 2019 and has been active within the previous 16 months
  • Members aged 25 or older who join a plan on or after 1 Oct 2019, and whose account has had a minimum balance of AUD $6,000 at any time and has been active within the previous 16 months

Other provisions. The bill doesn’t clarify how frequently a trustee must check members’ balances to determine when they trigger the AUD $6,000 threshold. A conditional exclusion applies for insurance fully purchased by the member’s employer on top of Superannuation Guarantee contributions.

Proposed effective date. The proposed effective date is 1 Oct 2019, but the uncertain timing of the bill’s passage and the preparatory work required to implement some provisions (for example, notifying relevant members by 1 Aug 2019) could postpone this deadline.

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