Debate over the place of IP in super

11 November 2010
| By Mike |
image
image image
expand image

Damien Hill

The number one priority for super members is saving for their retirement, with insurance benefits a distant second, which means there may not be room for mandatory income protection (IP) insurance within the new world of MySuper, according to SunSuper chief executive Tony Lally.

It is important to get the balance right between cost and cover, and along with the issue of underinsurance there are also members who have issues with overinsurance and simply having the wrong insurance, IUS Life general manager Phil Collins said at the Association of Superannuation Funds of Australia (ASFA) conference.

Lally said that while research shows members appreciate the simplicity of the classic $3 to $5 a week insurance premium and taking whatever that provides, there is increasing awareness of the need for insurance that increases with age.

REST Super chief executive Damien Hill said the solution might be insurance cover that takes a lifecycle approach. It would be relatively cheap in the early years when members don’t have mortgages and dependents and are trying to build an account balance, and give them the benefit of a lifetime of compound interest on early balances.

Insurance premiums build to a point when a member was in their 40s and likely to have children living at home and a large mortgage, then tail away towards retirement as members had less need for a large life insurance policy.

Lally said that funds would need to focus more and more on a life-stage approach to insurance and work to engage and educate members to guide them towards the appropriate level of cover.

Because of offsets, members who spend a lifetime paying a premium for income protection (IP) may never be able to receive the value of that policy, meaning the case for compulsory income protection is not compelling, Lally said.

The same applied to short-term disability protection because of the cost to members of maintaining the policy over a lifetime. The amount they would receive from a short period out of the workforce meant they were not getting value from that policy, he said.

In a cost analysis, a member paying for an IP policy would need to be off work for eight months late in their career to derive value from the policy given the impact it would have on their retirement savings, Lally said. An opt-in option for IP represented a more appropriate solution for those who wish to take it out, he said.

In a MySuper product, the recommendation that IP be included as either an opt-in or opt-out meant it would be difficult to compare funds that had differences around their IP cover, defeating the purpose of making funds simpler and easy to compare, Lally said.

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest developments in Super Review! Anytime, Anywhere!

Grant Banner

From my perspective, 40- 50% of people are likely going to be deeply unhappy about how long they actually live. ...

1 year 7 months ago
Kevin Gorman

Super director remuneration ...

1 year 7 months ago
Anthony Asher

No doubt true, but most of it is still because over 45’s have been upgrading their houses with 30 year mortgages. Money ...

1 year 7 months ago

The US and Europe trade deal represents a significant step forward in resolving trade conflict, but markets have largely priced in the good news already, says the asset m...

8 hours ago

Morningstar expects the Reserve Bank will still make around three cuts in this cycle, bringing the cash rate to a neutral level of around 3 per cent....

8 hours ago

Economists have tipped inflation to ease further, but any upside surprise in the June quarter CPI could derail the Reserve Bank’s plans....

8 hours 51 minutes ago

TOP PERFORMING FUNDS

ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
2
DomaCom DFS Mortgage
85.26 3 y p.a(%)
5