Issue 724, 24 October 2019
In this issue:
- TPD insurance: outcomes of ASIC review
- Interest on reunited unclaimed superannuation
- Superannuation Guarantee/salary sacrifice amendments
- Genuine redundancy and early retirement scheme payments
TPD insurance: outcomes of ASIC review
ASIC has released the outcomes of a review of total and permanent disability (TPD) insurance, highlighting “significant industry-wide problems” with the design of TPD cover and the claims handling process.
Report 633 Holes in the safety net: a review of TPD insurance claims outlines the findings from an ASIC review of 35,000 TPD claims across seven insurers. ASIC’s review found that:
- nearly half a million Australians are covered by a TPD policy that uses an ‘activities of daily living’ (ADL) definition
- 60 per cent of claims assessed under ADL cover are declined, in contrast to a declined rate of 12 per cent for all other TPD claims
- 12 per cent of claims lodged with insurers did not proceed to a decision, with poor claims handling processes contributing to some consumers withdrawing their claims
- consumers identified a range of insurer practices—such as difficult lodgement processes, poor communication practices and multiple requests for medical assessments and excessive delays—as problems they encountered during the claims assessment process
- insurers lacked key claims data to help them effectively manage the risk of consumer harm, including being able to identify the value of products to consumers and key friction points in their claims handling processes.
ASIC Commissioner Sean Hughes said ASIC “found that three TPD claims a day are assessed under the restrictive ‘activities of daily living’ definition, which has a concerningly high decline rate. People that hold this type of automatic cover through superannuation are typically paying the same premium—for what is essentially junk insurance—as people who can access less restrictive definitions under general TPD cover.”
ASIC has noted that superannuation trustees “have a crucial role to play in the delivery of life insurance to their members. We expect trustees to act in their members’ best interests by providing access to affordable insurance products that are suitably designed for their members while also safeguarding superannuation balances from inappropriate erosion”.
ASIC has indicated that it expects:
- insurers and trustees to take steps to implement changes to their claims handling practices and to redesign TPD products so that they offer significantly better value for consumers, by 31 March 2020
- insurers to invest in data resources and improve the quality of their data, including collecting data on outcomes for different types of TPD cover including claims assessed under restrictive definitions such as ADL.
Interest on reunited unclaimed superannuation
Legislation to support the payment of interest by the ATO on unclaimed superannuation has been passed by Parliament.
The Treasury Laws Amendment (2019 Measures No 2) Bill 2019 contains amendments to the Superannuation (Unclaimed Money and Lost Members) Act 1999 to:
- provide that interest is payable on amounts proactively reunified with an active account by the ATO, at a rate prescribed by the regulations. This amendment is intended to implement the original intent of the recent Protecting Your Superannuation Package reforms
- require a superannuation provider to repay an amount of interest that it received from the ATO if it was not credited to an account for the relevant member.
The Bill also amends the Superannuation (Unclaimed Money and Lost Members) Regulations 1999 to prescribe the rate of interest payable on:
- inactive low balance accounts being paid out by the ATO on the direction of a member or a member’s beneficiary
- amounts being proactively reunited with an active superannuation account on the ATO’s initiative.
According to the explanatory material, the latter set of amendments were considered time critical and were made via legislation because the “timetable for Executive Council consideration does not allow for the Regulations to be made by the required time”.
The Bill has been passed by both houses of Parliament without amendment and is awaiting Royal Assent.
Superannuation Guarantee/salary sacrifice amendments
Reforms to the Superannuation Guarantee (SG) legislation to ensure an individual’s salary sacrificed contributions cannot be used to reduce an employer’s SG obligations have been passed by Parliament with an amendment bringing forward the commencement date.
As noted in ASFA Action issue 717, the Treasury Laws Amendment (2019 Tax Integrity and Other Measures No. 1) Bill 2019 proposes amendments to the Superannuation Guarantee (Administration) Act 1992 to:
- prevent contributions made as part of salary sacrifice arrangement from counting toward the discharge of an employer’s SG obligations
- specifically include salary and wages sacrificed to superannuation in the base for calculating an employer’s SG obligations (so that SG must be paid on the pre-salary sacrifice base).
As originally drafted, the reforms were intended to apply in relation to working out an employer’s SG shortfall for quarters beginning on or after 1 July 2020.The Senate Economics Legislation Committee recommended that the Bill be passed, without suggesting any amendment to the SG measure.
During its debate on the Bill, the Senate passed an Opposition amendment to bring forward the commencement date of the reforms, to apply to quarters beginning on or after 1 January 2020. The amendment has now been accepted by the House of Representatives, and the Bill awaits Royal Assent.
Genuine redundancy and early retirement scheme payments
Legislation to extend the concessional tax treatment of genuine redundancy and early retirement scheme payments has been passed by Parliament.
Currently, these payments receive concessional tax treatment where they are made to an individual under age 65. In its 2018-19 mid-year economic and fiscal outlook (MYEFO) statement, the Government announced its intention to extend concessional tax treatment to those under Age Pension qualifying age.
The Treasury Laws Amendment (2019 Measures No 2) Bill 2019 contains amendments to implement this commitment, by aligning the age below which a person can receive a genuine redundancy or early retirement scheme payment with the Age Pension qualifying age. This is intended to address the circumstance where some older Australians who, due to their age, cannot access either the Age Pension or the tax-free component of genuine redundancy or early retirement scheme payments. The reforms will apply to genuine redundancy or early retirement scheme payments made to individuals who are dismissed or retire on or after 1 July 2019.
The Bill has now been passed by Parliament without amendment and is awaiting Royal Assent. The reforms do not make any other changes to the taxation of genuine redundancy payment or other types of employment termination payments and do not impact the tax treatment of payments made by superannuation funds.
Treasury recently consulted on a draft of the proposed reforms – see ASFA Action issue 715 for background.
ASFA REGULATORY WATCHLIST
ASFA’s Regulatory Watchlist (ARW) tracks developments in Legislation, inquiries, consultations
and other regulatory announcements relevant to superannuation.
