There were plenty of warnings but the inevitable has happened – up to three million Australians who have had life and disability insurance stripped out of their superannuation accounts are starting wake up to what has happened.
From 1 July this year, super funds were required to cancel default life insurance policies in any funds where members had not made a contribution for 16 months.
The only way out of that insurance cancellation was for super members to contact their super provider and “opt in” to the policy or reactivate the account.
Insurance cancellations in the mail
Now that the insurance cancellations are hitting the email inboxes and old-fashioned analog post boxes around the country, there have been plenty of very disappointed reactions from those that have lost perhaps the only life and disability insurance they have.
AMP (ASX: AMP) has already received more than 440 customer requests to reinstate insurance cancelled as a result of the Australian Government’s Protecting Your Superannuation legislation and it is warning the situation could get worse if the government does not delay the implementation of further legislation that will also impact inactive accounts.
AMP warns of a rush of insurance reinstatement requests
AMP was one of the super providers that had warned that the insurance cut-off was going to cause a lot of problems.
Before the 440 reinstatement requests, more than 5,000 of the company’s customers with inactive accounts (under the new Protecting Your Super (PYS) rules and with balances less than $6,000) had elected to retain their insurance.
If we assume that is simply the first wave of disappointed people and we extrapolate these sort of numbers across the many hundreds of super managers, there is a lot of pain to come as hundreds of people discover they have lost insurance and attempt to reinstate their policies – some with success and others with failure.
Law suits to come next
It is not hard to see a wall of law suits to come as those who thought they had death or TPD cover discover – too late – that it has been cancelled without their knowledge.
There will also be many thousands of super customers who will be thankful that the insurance premiums are no longer coming out of their account, preserving their retirement savings for longer and preventing their forgotten accounts of slowly being drained to zero.
However, the reform train is still running and the next station to be approached is the 1 October deadline for new legislation – the Treasury Laws Amendment (Putting Members’ Interests First) Bill 2019.
Letters don’t do the job
AMP is again warning that this deadline is again not leaving enough time for those with “lost” superannuation accounts to get used to the changes that will come on 1 October when low balance accounts will be swept up by the Australian Tax Office.
What the earlier PYS changes showed was that simply sending out letters to those with super accounts is not effective in getting information where it is required.
Almost by definition, those with inactive super accounts will have moved address, possibly several times.
Even if they haven’t, many people routinely toss out these sorts of communications without reading them.
Perhaps the one hope for a better outcome is that increasingly people are becoming more aware of their superannuation and of the ways that they can find out about lost superannuation accounts and consolidate them.
Getting people involved with their super is a long-term job and hopefully it is a work in progress.