(Bloomberg) -- Australia's government has banned the common practice of young workers automatically being charged life insurance, as policy makers fix structural flaws in the world's fourth-largest pension system.
Firms may only give life, disability and income protection insurance in default pension plans to new members aged under-25 or those with balances below A$6,000 ($4,075) if they've explicitly ask for it, under legislation passed by parliament Thursday. The bill comes into effect in April 2020 and ensures workers in dangerous jobs can still get automatic cover.
Australia is overhauling its mandatory retirement savings system after a government-commissioned review earlier this year found it was beset by a litany of problems including high fees, multiple accounts and chronic under-performance by some funds. The package of laws targeting insurance account for more than A$3 billion in premiums each year, Rice Warner Chief Executive Officer Andrew Boal said in an emailed statement.
“It means the hard-earned retirement savings of millions of Australians will be protected from undue erosion through inappropriate insurance arrangements,” Treasurer Josh Frydenberg and Assistant Minister for Superannuation Jane Hume said in a joint statement.
Flawed Australia Pension Industry Faces Overhaul: Key Numbers
Parliament has already passed other measures to fix structural flaws in the pensions system:
- Laws that came into force in July capped fees on accounts with A$6,000 or less and barred exit fees for members switching funds. Australia's tax office was also given greater powers to help people consolidate low-balance or inactive accounts.
- The prudential regulator in April was given greater powers to take action against under-performing funds before members suffer significant harm. That includes civil penalties for fund directors and trustees for breaching their obligations to act in the best interests of their members.
The overhaul comes as the government prepares to review the pension income system as more people enter retirement, live longer and need a steady flow of income on which to survive. One-quarter of Australia's workforce is forecast to be of retirement age by 2060, up from 16% this year, United Nations data published in June show.
To contact the reporter on this story: Matthew Burgess in Sydney at mburgess46@bloomberg.net
To contact the editor responsible for this story: Edward Johnson at ejohnson28@bloomberg.net
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