By: HUB’s EB Global Benefits Team

What Is It About?

Australia's superannuation and insurance landscape is undergoing significant changes due to legislative reforms aimed at protecting members' interests, promoting transparency, and simplifying product offerings. These changes are shaping industry trends and impacting both employers and individuals.

Mandatory Superannuation Contributions and PayDay Super

The Australian government’s efforts to enhance retirement savings includes gradual increases in mandatory employer contributions to superannuation. Starting at 9% in 2018, the rate is set to rise to 11.5% on July 1, 2024, and will reach its final increase of 12% on July 1, 2025. Furthermore, the cap on concessional (before-tax) super contributions will increase from $27,500 to $30,000 per year, raising the required contributions from employers for higher income earners. Additionally, the "payday super" initiative beginning in July 2026 will require superannuation contributions to be remitted on the same day as salary payments, necessitating payroll system adjustments and emphasizing employer compliance.

Stapling Reform and Legislative Changes

The Australian superannuation system has been further complicated by several legislative reforms, namely Protecting Your Super (PYS), Putting Members' Interests First (PMIF), and Your Future, Your Super (YFYS). These reforms aim to protect superannuation savings from erosion by fees and insurance premiums but have had significant unintended consequences:

  • Stapling Reform: The "stapling" reform links superannuation accounts to individuals as they change jobs to simplify the system and prevent multiple accounts. However, it has raised concerns about potential gaps in insurance coverage. This is particularly relevant for those in high-risk occupations requiring specialized insurance beyond default options.
  • PYS and PMIF Reforms: These require insurance to be opt-in for inactive accounts and restrict default insurance for young or low-balance accounts. While aiming to reduce unintended premium costs, many members may not have life insurance coverage through their superannuation unless they actively opt in.

    This underscores the need for proactive understanding of insurance needs and exploring options beyond superannuation.
  • Abrupt Increase in Personal Underinsurance: The cumulative effect of PYS, PMIF, and YFYS has created a significant underinsurance gap. As of June 2023, 38% of Australians lost default Total and Permanent Disability (TPD) insurance and 36% lost default life insurance previously provided under superannuation. Although insurance premiums were lower overall, some individuals and their beneficiaries faced substantial financial losses. In 2022-23, around 5,000 sets of beneficiaries missed out on a total of $665 million in death benefits. Additionally, around 11,000 individuals would have received approximately $1.5 billion in TPD benefits annually without these changes.

These unintended consequences are being addressed by employers introducing separate insurance arrangements outside of superannuation. Group Salary Continuance insurance (income protection) is becoming an increasingly cost-effective way to transfer this risk and enhance overall attraction and retention strategies.

Private Health Insurance Reforms

The government has introduced reforms to simplify private health insurance, creating new tiers (Gold, Silver, Bronze, Basic) and clinical categories to improve transparency and empower consumers to make informed choices about their coverage. Additional changes include expanding the age limit for dependents, increasing transparency of out-of-pocket costs, and expanding access to mental health and rehabilitation services.

These legislative changes indicate a broader trend towards increased consumer protection, transparency, and personalization in the superannuation and insurance sectors. As the industry adapts, it is crucial for both employers and individuals to stay informed and proactive. Employers must consider the broader insurance needs of their employees and explore options beyond superannuation contributions to address potential coverage gaps.

Impact on Companies

  • The phased increase in mandatory employer superannuation contributions will directly impact company budgets and may necessitate adjustments to compensation packages and financial planning.
  • The "payday super" will require employers to modify payroll systems to ensure same-day remittance of super contributions, potentially requiring investment in new software or processes.
  • The complexity of the superannuation and the insurance landscape, coupled with increased job mobility, has augmented the potential for employee coverage gaps.

Suggested Employer Action

  • Review and adjust company budgets to accommodate the rising superannuation contribution rates.
  • Prepare for the implementation of "payday super" by evaluating current payroll systems and identifying any changes to ensure.
  • Take a proactive step to review and understand the unintended consequences of the PYS, PMIF, and YFYS legislation. Communicate these changes to employees, including the implications of stapling and opt-in insurance, and emphasize the importance of regularly reviewing their coverage. Provide resources and support to help employees understand their options
  • Consider offering supplementary benefits such as life insurance, private health insurance, and Group Salary Continuance insurance (income protection) to ensure comprehensive coverage for all employees. This approach not only mitigates risks associated with legislative changes but also demonstrates a commitment to employees' overall well-being and security.

If you have any questions, please contact your HUB Advisor. View more updates in our Global Benefits Directory.