The federal government has altered its position on the treatment of insurance commissions as part of the draft legislation for the Future of Financial Advice (FOFA) reforms.
Financial Services and Superannuation Minister Bill Shorten yesterday said a ban would apply to commissions on group life insurance in all superannuation products and to commissions on any life insurance policies in a default or MySuper product from July 2013.
“This means that commissions on individual life insurance policies within superannuation would only be allowable on self-managed superannuation funds (SMSF) and choice products,” Shorten said.
He said the move followed extensive consultation with industry since the April announcement that the government would ban upfront and trailing commissions and like payments for both individual and group risk insurance within super from July 2013.
MLC & NAB Wealth group executive Steve Tucker said the government’s revisit of the ban on individually advised insurance within super was a good outcome for consumers and the industry.
“The government’s announcement does, however, indicate that the ban on commissions will apply to all group insurance within superannuation, which means MySuper will be commission free,” Tucker said.
The Self-Managed Super Fund Professionals’ Association of Australia (SPAA) said the measure would remove distortions and would ensure a level playing field for individual insurance policies.
“This is a positive measure for the SMSF sector,” SPAA chief executive Andrea Slattery said.
The draft legislation also said that by July 2013, industry would need to unbundle disclosure so the dollar and percentage value of commissions were disclosed for all new and renewed policies.
“This will enable customers to see the impact of commissions on their premiums,” Shorten said.
The government would work with industry and consumer groups to introduce uniform claw-back provisions to remove the incentive for some advisers to shop around for the most generous claw-back arrangements, he said.
