Claire Chandler (Tasmania, Liberal Party) | Hansard source

I rise today to speak in support of the Treasury Laws Amendment (Putting Members' Interests First) Bill 2019. In particular after that last contribution that we had on this bill, I want to put it on the record that this is a bill about choice. This is not a bill that is stopping people from having life insurance if they want. What this bill is about is giving people the ability to choose insurance if they want to if they're in a certain cohort. What we are in effect doing is empowering people to take control of their super.

This is also a bill about young people. As the youngest member of the coalition in this place and, I believe, and also the youngest member in this place if we include the opposition, it gives me great pride to speak on a bill that will have such a profound impact on young people. Being slightly closer in age to the cohort that we are talking about here, I like to think that I might have some authority to discuss in my contribution today some of the reasons why young people become disengaged with superannuation and how this bill that we're discussing today will seek to improve that.

This is a sensible piece of reform that we're discussing today. It will allow young superannuation scheme members choice in how they take out insurance products within their superannuation and will prevent their low balances, which we know this cohort traditionally has, being eroded by fees for insurance products they may not need or want. This bill requires that insurance be provided only on an opt-in basis for members with balances below $6,000 and any new members from 1 October 2019 who are under the age of 25. And I'd like to dwell for a moment on those two important words: 'opt in'. We're not saying that young people don't need life insurance. We're not saying that young people or people with balances below $6,000 can't have life insurance. What we are doing is giving these people the choice as to whether or not they seek this product out. If you want insurance through your superannuation fund, under this bill you can choose to have it. If you don't then you won't lose hundreds of dollars a year for a product that you were automatically enrolled for when you filled out the paperwork for your superannuation scheme.

We know how important super is to Australians as they head towards retirement. From day one of your working life, you begin saving for retirement through the super contributions your employer makes on your behalf. Because super is so important, we should be encouraging young Australians to be aware of and engaged in their super choices so they can avoid excess fees and understand how their money is being invested. Yet for many young Australians their first experience of superannuation is receiving a statement from their fund showing that, after fees and insurance premiums, their balance has actually gone backwards. When that's your experience of superannuation, it's pretty easy to switch off and stop paying attention to what your super fund is doing.

Senator Gallacher mentioned in his contribution just now the importance of engaging young people in super, inferring that, because young people aren't engaged with their super, that's why we need to compulsorily force these insurance products upon them, but I think that's quite counterintuitive. I think the best way to engage people in superannuation is to not gouge their fund balances out in those early years, or when it's under a certain balance, because there is no better way to disengage someone from a process or a purchase that they've undertaken than by actually taking away some of the value that they've put in.

Why should a young person with no children or dependants working a few shifts in a bar or supermarket every week see their super balance reduced to pay for life insurance? Yes, under current arrangements they can choose to opt out. But if you sign up for superannuation and, by default, are also signed up for life insurance, the natural assumption to make is that it's important, just as important as having a superannuation account, and that you'd be taking a risk not to have it. That's why the two products are marketed together at the same time.

How many 18- and 19-year-olds do we think have the experience and the financial knowledge to fully understand what life insurance is and to assess whether they need it? I won't cast aspersions on all of the 18- and 19-year-olds in Australia, but what I will say is that when I was that age I certainly didn't have that experience or that knowledge. At the same time as these young people are signing up to super funds when they get their first job they're also trusting these funds to manage their retirement savings for the next 45 years. That's fine. But at the same time this transaction is going on, at the same time these young people are signing up, the super funds, who put themselves out as sound financial managers—after all, that's the business they're ostensibly in—in effect say to young people: 'We've also signed you up for life insurance at the same time. Trust us; it's a good deal.' The natural thing, of course, is to go along with it.

There's a huge difference though between opt-in and opt-out, and anyone who tells you otherwise is being dishonest. Everyone with an email address has had the experience of being regularly bombarded with marketing emails from hotels you once stayed at, stores you once bought something from five years ago or marketing partners of various websites you registered with just because you didn't bother to uncheck the 'Yes, I would like to receive special offers' box. Ninety-nine per cent of the time you would never have knowingly signed up for these, but in this case you were registered for it by default and five years later you're still receiving the emails because you haven't hit unsubscribe. If we don't have the time in our lives to unsubscribe from junk emails, what 20-year-old is going to sit down and research whether they need life insurance and then fill out paperwork to cancel their policy? These types of sales tactics aren't in the best interests of young Australians and people who have low incomes.

Default insurance required under Labor's MySuper reforms can result in members paying for cover that goes beyond their needs or paying for multiple policies upon which they can never claim. To put this in perspective, based on 2015-16 data, around 2½ million Australians who were either under 25 with a new account or with an account balance below $6,000—the cohort we're discussing today—paid an estimated $1.2 billion in insurance premiums annually.

There's a long list of problems with automatically enrolling young workers and low-income earners into insurance products. Indeed, the Productivity Commission found insurance is poor value for younger and low-income Australians, and estimates that insurance would erode balances for low-income workers by up to 14 per cent. Tax data shows that 96 per cent of 18- to 25-year-olds don't have dependents, and less than one per cent of people under 25 actually claim on their insurance in their superannuation. Further, it's estimated that 18- to 25-year-olds are paying more than three times the true risk based premium they should be, therefore subsidising older workers with much higher balances.

Insurance premiums can reduce low-income earners' retirement balances by 10 per cent or more, compared to having no insurance, and increase with every additional set of policies that might be held by an individual. Around 20 per cent of super fund members have duplicate insurance policies across multiple superannuation accounts. That means they may not be able to claim on these policies that they're paying for, even if they do need them.

One in four people don't know whether they're covered for these insurances or what they're covered for, and, honestly, it surprises me it's only one in four. Speaking of when I was a young worker going into the workforce, setting up my superannuation account, I was certainly one of that group. It demonstrates a significant amount of Australians are being signed up for something that costs them hundreds of dollars a year without knowing or without knowing why. And the Productivity Commission has reported that almost half of all super members surveyed found the opt-out process difficult or complicated. Again, I think that is an important point, going back to the metaphor of unsubscribing from emails. It's a difficult process. We know that young people are after more instantaneous processes. If it's going to take them too long to do something, they're not going to do it.

This list of problems demonstrates why these insurance policies should be opt-in. Through this bill the government will ensure that members who are at particular risk of account balance erosion will not have insurance provided as a default, unless they've directed otherwise. Of course, there is nothing wrong with being cautious and choosing to insure yourself against death, permanent disability or loss of income, but that should be an individual's conscious decision, particularly when they're just starting out at work or working casually and the costs of insurance premiums can exceed the amount their super fund is earning every year.

This bill doesn't claim there is no value in insurance—though certainly some of the contributions on the other side today have suggested it does, and that's not true—and this bill also doesn't claim there haven't been occasions when the insurance offered through super schemes has been important to individuals and their families. What this bill does do is ensure that people make a conscious choice about the financial products they're signing up for.

I know that the insurance industry has been lobbying heavily against these reforms. Clearly, super funds are not a neutral voice in this debate who are only interested in the best interests of their members. After all, as I said earlier, there is $1.2 billion in insurance premiums paid by Australians under 25 on the line. We've heard a lot recently about the behaviour of the banking and financial services industry, and, in many respects, they've been found severely lacking. I would have hoped that, after the recent banking royal commission, any business in the financial services sector would be thinking twice about selling products which people don't need, don't want or don't understand and about marketing them to people in a way that they don't even know what they've signed up for and what they're paying. Unfortunately, that doesn't seem to be the case when it comes to these insurance policies.

However, it's very clear that there is wide support for these reforms, including from institutions such as the Productivity Commission, CHOICE and even the Grattan Institute, who all want to see an end to the existing arrangement of automatically enrolling people in insurance products. Fundamentally, this bill does what it describes—it puts first the interests of members, particularly the interests of young members. There are so many ways we can encourage young people to be more engaged in superannuation, and changing the rules so they can get true value out of their super, as this bill does today, is only the beginning. I urge all senators to support the bill.