By now, potentially three million Australians are in the process of having life and disability insurance stripped out of their superannuation accounts.
From 1 July, super funds will be required to cancel default life insurance policies in funds where members have not made a contribution for 16 months, unless members took the decision to “opt in” to the policy or reactivate the account.
For some the lack of insurance premiums coming out of their accounts will be a blessing – preserving their retirement savings for longer and preventing forgotten accounts of slowly being drained all of the way to zero.
Lapsing insurance could be a disaster
For many others, the lack of insurance could be an absolute disaster and there are sure to be a plethora of sad stories to emerge over coming months and years from people whose only life and disability insurance was taken away from them because they were out of contact with their fund or ignored letters and emails.
It is not the only case of misfortune to emerge out of very low-profile policy changes – another one is significant changes to the Higher Education Loan Program (HELP).
HELP fees to be extracted at a lower income
At least 136,000 young Australians will soon be added to the 617,000 former students who will be forced to repay their HELP debts thanks to a lower income threshold at which the debt becomes payable of $45,881 a year.
The policy change by the Coalition government is designed to ramp up the repayment of outstanding student debts, which have now risen from just $18 billion in 2009 to almost $62 billion in 2018.
The threshold at which repayments are taken out of salaries has now been progressively lowered over three years from $56,000 in annual salary to $45,881.
Some students will pay as they learn
What this change means is that some students who are working and studying at the same time could end up making repayments even before they graduate.
Many others who have graduated and are working in lower paid jobs will be dragged into the net and begin making repayments much earlier than they may have imagined.
The number of HELP debts out there is substantial and they are widely regarded as a fairly cheap loan, which is why many graduates don’t mind spinning out the repayment period by undertaking further studies or having a lower income.
Older students that are near retirement are also less likely to pay back their HELP debts.
The debt is increased each year by the rate of inflation, which is generally cheaper than any commercial loans.
Average debt is $22,000 but some are more than $100,000
The average HELP debt is now around $22,000, although some loans can be much higher and there are just short of three million people with a HELP loan – coincidentally around the same number as those losing insurance through super.
The Government’s aim is to get more of the debt repaid earlier to make the system more sustainable, with around a quarter of the current total debt or $15 billion considered unlikely to be repaid because those incurring it will not earn enough for long enough to pay it off.
Repayments start at $10 a week but can rise above $258
Under the current rules, the debt lapses at death and is not recovered from the estate.
Under the new system, the repayments are made on a sliding scale from 1% of salary for those earning between $45,881 and $52,973 a year, rising to more than 10% of income for those earning above $134,573 – up from the current 8% of income.
That means weekly repayments will range from around $10 all the way to $258 and much higher for graduates in very high paying jobs.
The changes, along with earlier attempts to widen the HELP repayment scheme to graduates who work overseas, is expected to increase the speed and amount of HELP loans that are fully repaid.