The federal government's proposal to ban own-occupation total and permanent disability (TPD) insurance held in superannuation is likely to have widespread consequences that are still not well understood.
"My concern is that there doesn't appear to be any investigation into how widespread this product is and what consequences there are for members that have that product," Holding Redlich partner Jenny Willcocks said at the Australian Institute of Superannuation Trustees (AIST) insurance symposium in Sydney earlier this week.
Willcocks said little research had been done on the impact of a ban on trustees and group insurers.
"There is probably on the government side a lack of understanding on how widespread this is and what the consequences are of removing it," she said.
"I don't see it as a very good news story for members."
She pointed out the government had taken the measure because the definition of own occupation did not match the definition under the Superannuation Industry (Supervision) Act, which only allows the release of TPD insurance money when the definition of any occupation is met.
"Now in theory what could happen is that they might not be able to do their own occupation, but they might be able to do other occupations. Members who have paid the extra premium would probably expect that if they can't do their own job to get paid."
But in practice, funds are supposed to retain the insurance money in the fund until the condition of any occupation is met and so members are sold a product that super funds might not be able to deliver.
AIST has recognised the insurance definitions need work, but the institute did not expect the ban.
AIST project director David Haynes, who was a member of a Stronger Super working group, said there was little indication the government would take this measure.
"The position of the working group was that we supported this notion of standard definitions so that there weren't issues with release, but we also said that it required more investigation and more consideration and more consultation with the industry," Haynes said at the symposium.
"I left the consultation process with the view that that was the consensus view of the group and that that would be reflected, not only in the Costello report to the government, but also in the advice that the Treasury gave to the government.
"So it is somewhat of a surprise to us to see that blanket prohibition on own occupation and it is not something that we support."
AIST wants to see the definition changed so that super funds can adequately provide own-occupation insurance.
"We see it as a real benefit to members and we support the change in the conditions of release as the major means of achieving standardisation, not the ban on own occupation," Haynes said.
