Actuarial research house, Rice Warner has claimed the Productivity Commission (PC) has misinterpreted Rice Warner’s findings with respect to the impacts of removing insurance inside superannuation on the Age Pension.
In a response to the PC’s recently-published Supplementary Paper on the Fiscal impacts of Insurance in Superannuation, Rice Warner has defended the benefits of insurance inside superannuation noting that despite some problems it represents “one of the great success stories of our industry”.
As well, it said that more focus on the social benefits of insurance inside superannuation would go a long way to creating good policy outcomes.
Referring the PC’s use of Rice Warner modelling, the company stated:
- The PC asserts that Rice Warner has estimated that removing insurance from superannuation would result in a net cost to the Australian and State and Territory governments.
- This would appear to have been mis-interpreted. Our submission (sub.46) does present our estimates on costs to Government however these should not be interpreted as net.
- We have previously estimated such benefits to the Government through higher tax due to reduced contribution tax concessions and reduced earnings tax concessions.
- The PC introduces the Age Pension cost to Government (arising from balance erosion) and has modelled this using simple cameos. We have undertaken detailed modelling and found the net impact of insurance in superannuation on Age Pension outlays is modest. Removing insurance from superannuation would only reduce Age Pension expenditures by less than two per cent by 2050 in aggregate. This is negligible, particularly against an environment where Age Pension costs are expected to fall significantly as a percentage of GDP.
- Indeed, we note Treasury would usually exclude Age Pension effects from its own costings as they arise beyond the forward estimates and are a second order effect.
- The PC noted its cameos showed Income Protection generating a greater fiscal cost to Government than TPD in apparent contradiction to our modelling.
- We note that our analysis of the more limited fiscal impact of Income Protection is a direct result of the majority of superannuation funds choosing not to offer this as a default benefit. The PC does similarly acknowledge this in its paper. However, this is not easily captured by the cameo modelling completed by the PC.
Perhaps most importantly we note that an analysis focused completely on fiscal costs to Government omits many of the benefits of insurance in superannuation which we have highlighted in our submissions.
Any members experiencing a claim event would obviously be in a far worse financial position both potentially as an individual and/or for their family unit. Just ask the 85,000 claim beneficiaries in the 2017 Financial Year.
