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Budget axes exit fees, default cover for under-25s

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Exit fees on superannuation accounts will be stopped and under-25s will no longer be given default life insurance under reforms outlined in the federal budget.

Another proposal is for the transfer of all inactive super accounts with balances below $6000 to the Australian Taxation Office, which will have expanded powers to reunite them with members’ active accounts where possible.

Super funds will be required to offer life insurance only on an opt-in basis to members with less than $6000, and to those who have received no contribution for 13 months or more.

The Government says the switch to an opt-in basis will save $3 billion in premiums for about 5 million super members.

“Australians should not be defaulted into insurance they cannot claim on, or which is significantly beyond what they need,” Minister for Revenue and Financial Services Kelly O’Dwyer said.

“The Government will also consult publicly on ways in which the current policy settings could be improved to better balance the priorities of retirement savings and life-risk insurance cover within super.”

Canberra aims to implement the new measures on July 1 next year. Consumer group Choice has welcomed the opt-in regime.

“For too long the fledgling savings of young people have been depleted by crudely designed life insurance policies that they often don’t even realise they are paying for,” CEO Alan Kirkland said. “People who decide they want insurance will still be able to opt in, but this will stop millions more being charged unnecessary premiums.”

The Financial Services Council says the proposal must be carefully worked through to protect those who need insurance most.

“This is an opportunity for super funds to start a conversation with their younger members about all aspects of their superannuation savings,” CEO Sally Loane said.

“Greater engagement leads to better outcomes in retirement.”

Treasury has released the exposure draft legislation for public consultation. The closing date for submissions is May 29.

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