The Productivity Commission wants an independent public inquiry into group insurance, saying it provides poor outcomes for low-income members.

In its report on the efficiency and competitiveness of superannuation, the commission says super-linked insurance policies do not deliver value for all members, because the types and levels of cover are decided by employers’ choice of default products.

For low-income earners, premium deductions erode retirement balances.

“The Australian Government should commission an independent public inquiry into insurance in superannuation,” the report says.

“This inquiry should evaluate the effectiveness of initiatives to date, examine the costs and benefits of retaining current insurance arrangements on an opt-out basis, and consider if more prescriptive regulation is required.

“It should also look at the intersection of insurance in super with other schemes (such as workers’ compensation) and consider how best to provide assistance to people in the event of illness and injury, including whether opt-out insurance through superannuation is the most efficient and equitable way to do so.”

The commission also urges Canberra to pass reforms making default cover opt-in for people aged under 25.