The Productivity Commission has outlined room for improvement in the voluntary code of practice for providing insurance within superannuation.

Future versions of the code should be binding, enforceable on participants and meet standards set by the Australian Securities and Investments Commission (ASIC), it says.

ASIC and the Australian Prudential Regulation Authority should jointly monitor code adoption and provide guidance on ways to enhance it.

“The code is a step in the right direction,” the Productivity Commission’s draft report on the $2.6 trillion superannuation system says.

“But it falls well short of what is considered best practice for an industry code of conduct.

“Many are now sceptical of its prospects for delivering material improvements to member outcomes. Further work is needed to bolster code provisions and implement appropriate administration and compliance mechanisms to make the code binding on participants.”

The report also flags industry issues including balance erosion and so-called “zombie” covers that provide no protection. It says poor-value policies should be weeded out and insurance offered on an opt-in basis to under-25s.

About 80% of super-linked insurance covers – life, total and permanent disability and income protection – are provided automatically.

“While many members are getting affordable life insurance through their super, some end up with cover that is manifestly unsuitable,” Commissioner Angela MacRae said.

“And many unknowingly have duplicate insurance policies, which can erode their super balances at retirement by over $50,000.”