New research from the Association of Superannuation Funds of Australia (ASFA) estimates that, since 2019, around 5,000 Australians a year have died without superannuation-linked life insurance, with their beneficiaries missing about $670 million in death benefits annually, and that approximately 11,000 people a year are no longer receiving total and permanent disability (TPD) payouts valued at about $1.5 billion.
ASFA’s analysis attributes these outcomes to changes to default insurance in superannuation introduced in 2019. The organisation estimates that, following the reforms, about 5 million individual superannuation accounts lost insurance cover. The Protecting Your Super Package (PYS) required super funds to cancel insurance on accounts that had been inactive for 16 months, unless members opted to retain cover. The Putting Members’ Interests First (PMIF) Act restricted trustees from providing default insurance to new members under 25 and to accounts that had never reached a $6,000 balance, subject to limited exceptions such as certain dangerous occupations.
ASFA chief policy and advocacy officer James Koval said the organisation sees the findings as indicating that current default settings are no longer aligned with how Australians engage with superannuation. “I really feel for the families who’ve been caught by some of the unintended consequences of the PYS and PMIF legislation. These laws were meant to protect balances, and that intent was sound. But the mechanism was too blunt. Insurance was switched off by default, often leaving people unaware it had happened. Our research now shows the scale of that consequence. The problem these laws were designed to solve, unwanted multiple accounts and balance erosion, has been largely addressed through other means. The data makes a strong case for revisiting whether the current settings are still doing more good than harm,” Koval said.
The PYS package, announced in the 2018-19 federal budget, combined fee and insurance measures to reduce balance erosion. It introduced a cap on administration and investment fees for low-balance accounts, banned exit fees, and required the transfer of small inactive accounts to the Australian Taxation Office (ATO), which is empowered to reunite those amounts with active member accounts. From an insurance perspective, PYS moved many inactive accounts to an opt‑in basis. PMIF then embedded an opt‑in requirement for members under 25 and for low-balance accounts that had never reached $6,000, unless members elected to take or keep cover or met a specific exception.
Guidance from the Australian Financial Complaints Authority (AFCA) explains how complaints about cancelled or unavailable cover under PYS and PMIF are assessed. AFCA considers whether trustees acted in accordance with the Superannuation Industry (Supervision) Act, the Treasury Laws Amendment (Putting Members’ Interests First) Act, the fund’s trust deed, the group insurance policy, and relevant disclosure obligations, and has stated it cannot require trustees to act contrary to legislation or governing rules.
ASFA reports that group insurance through super currently covers about 9.3 million Australians for death benefits and around 8.2 million for TPD, compared with roughly 12 million people receiving employer superannuation contributions. This indicates that a notable share of contributors do not hold default group cover. Cohorts most affected by the post‑2019 settings include new entrants to the workforce under 25, self‑employed or gig workers with inactive accounts, and members yet to reach the $6,000 balance threshold. ASFA notes that these groups face similar exposure to workplace injury, road accidents, and mental health conditions as the broader workforce, but are less likely to hold cover after the reforms. Some industry participants view the reduction in life and TPD claims since 2019 as evidence that a portion of potential claimants are now uninsured.
Intermediaries, such as Howden, have linked these trends to a broader rise in personal underinsurance and an increase in employer exposure. Without personal or group cover, employees who experience illness or injury may seek financial support from employers, including ex gratia payments or extended paid leave, creating unplanned liabilities. Howden’s commentary cites estimates consistent with ASFA’s research: “It is estimated that annually there is 5,000 sets of beneficiaries of death benefits who do not receive any life insurance proceeds as a result of these legislative changes. In addition, without the PYS and PMIF changes there would have been an additional 11,000 individuals a year receiving around $1.5 billion in TPD benefits.”
In response to these shifts, some employers are implementing or expanding employer‑sponsored life and income protection arrangements, including salary continuance insurance, as part of their workforce risk strategies. This changes how protection is distributed between compulsory super, workplace programs, and individual policies. ASFA’s research outlines several options for adjusting default insurance settings. Recommendations include extending opt‑out default cover to all members aged 21 and over rather than 25, providing default cover to new full‑time employees from commencement of employment instead of after a $6,000 balance has accumulated, and replacing automatic cancellation on inactive accounts with an enhanced opt‑out process requiring an explicit member decision. These proposals, discussed at ASFA’s Spotlight on Insurance forum in Sydney, are expected to inform continuing discussions among funds, insurers, regulators, and employers on balancing premium erosion controls with access to life and disability cover for working Australians.
