The Productivity Commission (PC) has used a new piece of research to disagree with both KPMG and Rice Warner about the impact of insurance inside superannuation on both account balances and the Age Pension.
In a supplementary paper attaching to its current inquiry into superannuation efficiency and competitiveness, the PC has stated that modelling around the ultimate cost impact of insurance inside superannuation has to take account of the Age Pension.
“The Commission’s cameo modelling suggests that when looking at the fiscal impact of insurance in superannuation, Age Pension effects matter, especially for low- and middle-income individuals,” it said. “Therefore, estimates that exclude Age Pension effects are likely to overestimate the net fiscal benefit of insurance in superannuation.”
The report said that the PC’s analysis also suggested that income protection (IP) insurance for single individuals was the cohort for which a net fiscal benefit was most likely (although the absolute fiscal impact would be constrained by the fact that only around 30 per cent of superannuation members have default IP insurance).
The PC report argued that while default insurance inside superannuation had resulted in broad coverage of the Australian population, in some cases it could lead to the substantial erosion of members’ superannuation savings when they retired.
It said that one of the arguments made to support the case for having default insurance inside superannuation was that it resulted in a net fiscal benefit to government by reducing social security outlays.
However, the report said this needed to be weighed against erosion of superannuation balances through the deduction of insurance premiums and the manner in which this would lead to greater Age Pension payments for some members.
The PC report said there were also tax considerations, including insurance premiums reducing superannuation savings and therefore tax collections and the tax deductions received by superannuation funds for insurance premiums that they pay to insurers.
Again, another mandarin telling us we don’t need life insurance because theirs is supported by the Government. How about doing some research as to the overall social security costs of not having life insurance beyond the possible costs to the Age Pension. How about the costs to Sickness Allowance, Family Tax Benefit Part B, Disability Support Pension, etc.
Wow, whether insurance is inside or outside super it is a cost and IP is tax deductible outside super. More people will hold insurance if they have an option of paying via super. Holding insurance at all is the consideration that needs to be made here, do they not get that? If it is outside super, there is less available to invest or salary sacrifice to super.
So basically the argument is that insurance is not worth having as you have to pay premiums to have it. Is that the message I hear from this?
Perhaps we should just ask them to tell us which particular members will get sick or injured and then we can give them more accurate projections on the cost to the economy?