New research commissioned by the Association of Superannuation Funds of Australia (ASFA) has found that insurance provided to people through their superannuation reduces the annual cost to government of social security by about $403 million. These savings are a result of a decrease in costs related to government spending on income payments to families who have lost a breadwinner, or individuals who have become disabled.
The Rice Warner report also found that insurance through super delivers a number of additional benefits to the community. In particular, it results in more people having life insurance cover than otherwise would, as a relatively low percentage of people in Australia purchase life insurance voluntarily. This means that, without the provision of insurance through superannuation, the underinsurance gap in Australia would be much bigger.
In terms of the total size of insurance cover across the community, group insurance within super represents:
- 71 per cent of total death benefit sums insured
- 88 per cent of overall total and permanent disablement (TPD) sums insured
- 59 per cent of income protection monthly benefits.
"While there has been a lot of commentary regarding superannuation fees, the same focus should be placed on the benefits that superannuation delivers," says ASFA CEO Ms Pauline Vamos.
"Underinsurance is a real problem for individuals and for governments, which absorb the cost of underinsurance through the provision of social security services. What this report shows is that these costs would be substantially higher if millions of people were not covered by insurance through their superannuation fund.
"Default insurance has also helped thousands of people deal with financial hardship after an unexpected tragedy. Without it, it's likely many people would not even have a basic cover of life, TPD or income protection insurance cover. Therefore, it has an important role to play in reducing the underinsurance gap for millions of individual fund members.
"Insurance obtained through super is often cheaper than traditional individual policies, which means these benefits are being realised at a lower cost to the consumer."
The research also highlights the fact that the costs of providing insurance are not recognised when making comparisons of the cost and expenses between superannuation and pension systems globally.
"The Australian superannuation system is unique in that it provides members with additional benefits, such as insurance and access to limited advice, as part of the fees they pay. This is often not taken into account when it comes to making comparisons of pension and superannuation systems in other countries.
"What's more, even with this additional benefit, when compared globally, the average Australian member is not paying more than members of similar funds in developed economies around the world," Ms Vamos concluded.
For a copy of the full research report, click here.
For further information, please contact:
Lisa Chikarovski: Manager - Consumer Strategy, Media and Public Affairs, 0451 949 300.
ASFA is the peak policy, research and advocacy body for Australia's superannuation industry. It is a not-for-profit, sector-neutral, and non-party political national organisation, which aims to advance effective retirement outcomes for members of funds through research, advocacy and the development of policy and industry best practice.