Interview with Geraldine Doogue, ABC Radio National

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GERALDINE DOOGUE:

Now to another realm of the financial services industry related to that core point emerging from this week’s dramatic hearings namely how can Australians rely upon good systems and good individual conduct in the future to prioritise their interest in managing their savings retirement. For many of us it’s been something of a shock to learn recently that most superannuation funds have a default life insurance policy built in and that unless we opt out we pay fees for it whether we need life insurance or not. 70% of Australians are paying for life insurance cover this way. It’s quite a figure, it’s been a quiet little earner for both industries, super and life insurance, and it’s one of many practices condemned by the Parliamentary joint committee enquiry into life insurance which concluded last month. 

So we’re going to shed a little more light on some of these practices which may well affect you or me or our children especially as you’ll hear. In a moment I’ll be speaking to the Minister for Financial Services, Kelly O’Dwyer, and Michael Rodden, who reports on that sector of The Australian. But first I would like to welcome Patricia Evans who is a retired lawyer who decided to look into the superannuation accounts of her son.

Hello Patricia.

PATRICIA EVANS:

Hello Geraldine.

GERALDINE DOOGUE:

What prompted you to assess your son’s super accounts?

PATRICIA EVANS:

Well Geraldine, like most young people my son had a number of part-time jobs while he was at University and when he got his first full time job I thought I would consolidate his super for him, so I started looking into his super he had about five accounts from various jobs and when I went to consolidate what I thought would be a small sum of money there was actually virtually nothing there. 

So I thought I’ll have a look and dig a bit deeper and see why there wasn’t much money there and I discovered that he was paying life insurance on about five separate policies which meant that with the administration fees and the life insurance premium it was just eating up any super that he had accumulated over those five or so years.

GERALDINE DOOGUE:

And he hadn’t even noticed this?

PATRICIA EVANS:

He had never noticed it because, as you said earlier, it’s an opt out scheme so you once you are join a super fund then you automatically get life insurance unless you choose to opt out. He didn’t know that, like I think a lot of young people don’t, and he didn’t make that choice to opt out. So he ended up basically having what little super he had being just eaten up with fees.

GERALDINE DOOGUE:

And I take it that there was no sort of retrospective claw-back?

PATRICIA EVANS:

No, no it’s gone.

GERALDINE DOOGUE:

But then your daughter has her own story which is slightly different.

PATRICIA EVANS:

Well having learnt from her brother she decided to get organised and she chose her own industry super fund when she had part-time work – she’s still at university. When she had part-time work she told her employers she’d like to make her contributions to that fund which worked well until she got a job as a part-time tutor at the university she attends. She was told there that she couldn’t use her own industry-based fund she would have to contribute to the university fund because it was part of their enterprise agreement. So she started contributing to the university fund and she said that she didn’t want to pay the life insurance premium and they started deducting the life insurance premium. So because she is a tutor she gets a new job each semester so even though she told them she wanted to opt out at the beginning of each new semester it is considered a new job, or a new contract, and she is automatically opted back in again. 

GERALDINE DOOGUE:

In fact this is UniSuper isn’t it?

PATRICIA EVANS:

Yes it is.

GERALDINE DOOGUE:

Because we actually sought a comment from UniSuper about this and we did get a statement yesterday. They said on joining members are advised in their welcome kit that membership includes insurance cover for which we deduct premiums and in response to member feedback we have implemented the ability for members to make an election to opt out of receiving a default cover and this means, and it will roll over, the member will have opted out of receiving default cover if membership closes and restarts a common scenario for casual employees. 

So it would appear they have now solved that.

PATRICIA EVANS:

That’s good because she’s just done the paperwork to opt out for the third time so hopefully that will now roll over.

GERALDINE DOOGUE:

Now you made a submission to the Royal Commission, which we have just been hearing about, yours was one of 3,433 submissions – what did you say? 

PATRICIA EVANS:

I said that, one of the terms of reference was community expectations that the Royal Commission should be looking at that, and I wanted to bring to their attention that young people are being taken for granted of basically through their superannuation funds because they don’t know how they operate, they don’t realise they need to opt out and if you are going to get any benefit from super it’s good to get in when you’re young and let it grow. If it’s just being eaten up by fees then it’s defeating the purpose.

GERALDINE DOOGUE:

Thank you, thank you for telling us that that account I’d like you to stay and listen and if you might like to contribute little bit later. 

I’d like to welcome now the minister, Minister for Financial Services, Kelly O’Dwyer, and Michael Rodden from The Australian who’s been writing on this so welcome to you both.

KELLY O’DWYER:

Good morning and great to be with you Geraldine and Patricia.

GERALDINE DOOGUE:

And you certainly have been in the news this week Minister I must say and I don’t want to derail us but I just have to ask you a couple of things. I think one of the key impressions people have been gaining is that if as the Treasurer said the Government has known about this and has been doing something about it, trying to, why was the effort to stop the Royal Commission so carefully followed through. Why not welcome the full spotlight of the Royal Commission to flush all this out?

KELLY O’DWYER:

So the first point I would make Geraldine, and I apologise my slightly croaky voice, is that obviously it was the Turnbull Government that implemented the Royal Commission and we have implemented a Royal Commission with very broad terms of reference so it actually includes all aspects of the financial services sector, including superannuation. The very example that Patricia has given is one that can now be considered as a result of our broad terms of reference. There was certainly concern in the beginning about whether in fact there could be the wrong message sent internationally about the stability of our financial system overall and certainly that was feedback that we were getting from people overseas “What’s wrong with your system if you need to have a Royal Commission?” I certainly note that when Labor was last in power they strongly resisted the need for a Royal Commission at that particular point in time and we as a Government wanted to very carefully consider that before we brought it into effect. But we have and we’ve done it, even though the Government has been taking measures after our Financial System Inquiry to improve the system and we have been doing that steadily.

GERALDINE DOOGUE:

As people have said these are historical claims a lot of this evidence offered up by the banks buts I think it’s a way that’s a shock that this has been known.

KELLY O’DWYER:

The point that I suppose the Treasurer was making is that a number of these cases have been investigated by the regulator, the conduct regulator ASIC, compensation has been paid in many of these cases and so you see this information of course is coming out in the context of the Royal Commission and rightly so, we fully back the Royal Commission we’ve given very broad terms of reference so the Commissioner can go where he wants which is the right thing to do and we will obviously very carefully consider the recommendations that he makes.

GERALDINE DOOGUE:

In order to restore trust – how can trust be restored do you think after the sorts of events that we’ve been seeing? 

KELLY O’DWYER:

There are things that we doing now to try and actually build the level of trust. One of the complaints that people constantly have made across the years has been that there is no one-stop shop for consumer complaints. People complain for instance to their financial institution, to their bank, they might not get satisfaction and then they didn’t know where to go. So we have created the Australian Financial Complaints Authority which is a one-stop shop for consumer complaints, where it’s free for the consumer, it will be fast, it will be binding on the financial institution and it will be able to offer compensation where that’s appropriate. These are quite significant changes, this is something that consumer groups, for instance, have been calling for for about 30 years and it’s been the Turnbull Government that is delivered it.

We’ve also said it’s critically important to actually lift the standards for financial advisers. I mean I was shocked to learn as Minister that there were financial advisers out there who had four days’ worth of training able to hang up their shingle, call themselves a financial adviser, give advice to people who had retirement savings. Is it any wonder that we have had scandals in the industry? 

GERALDINE DOOGUE:

All right, well let’s get back to insurance which is what we originally informed you of. The thoughts on Patricia Evans’s adult children’s case, these hidden life insurance fees in superannuation, is the government planning to do anything about this?

KELLY O’DWYER:

Well the short answer to that is yes, and can I say to Patricia she has brought to light an issue that people have been writing to me about as the Minister. I completely agree with her that it is wrong for young people to be ripped off, for them not to be able to have the money that they have earned through the compulsory superannuation guarantee there for them in their retirement simply because they’re young, simply because they’ve got different part-time jobs and because the system has been set up in such a way that they have been forced to open multiple accounts with multiple sets of fees, multiple insurance premiums which ultimately will erode their retirement income because the money basically goes to zero. 

Now the government has already got legislation in the Senate and this legislation is about doing exactly what Patricia has said, allowing people who have already got a fund to say I want to keep that fund if I got a new part-time job let me put the money into that particular fund, don’t make me open up a new fund. 

GERALDINE DOOGUE:

Now can we expect something in the Budget that so even more than you’ve announced thus far? 

KELLY O’DWYER:

Well I’m not going to reveal obviously what’s in the budget Geraldine but I say nice try on that. The Treasurer will obviously deliver that in May, but Patricia’s point is important. There are about a million people out there, a million Australians out there who because of an Enterprise Bargaining Agreement, or workplace determination, are forced to put their money into a particular fund.

Now we can all choose who we work for, but to say that you can’t choose where you put your retirement savings is wrong.

GERALDINE DOOGUE:

I’ll actually come to Michael Roddan now because you’ve been writing about the life insurance industry being under multiple pressures, I suppose a lot of people might choose not to have it at all. This is what is at stake I presume for the industry is it?

MICHAEL RODDAN:

More people are choosing to opt out of life insurance because if you’re a young person without any dependents you don’t really need it. If I die on a work site, usually the benefits go to my mother or something like that. Now there are a lot of young people with kids out there and they will opt to choose insurance but for someone like me, if I die on work site it’s not really worth my time to have this insurance eating away my savings, so the problem was that, there was a review done a couple of years ago that recommended that insurance in superannuation be served on an opt-out basis. Now most people just don’t know that they actually have this type of insurance there, so there’s a real sort of consumer education issue here that’s sort of the backbone to all of it.

GERALDINE DOOGUE:

Who is particularly at risk here? Are there particular groups, unskilled groups for instance, or young people who you think are more prone to this than others? 

MICHAEL RODDAN:

Prone in which way, sorry?

GERALDINE DOOGUE:

In terms of just not understanding what money that they are likely to lose. 

MICHAEL RODDAN:

Well I think education around superannuation is pretty bare minimum across the board. Most people don’t know which fund they are with, most people don’t know how many funds they have because whenever they sign up to a new job usually they just fill out the form and leave it to the default fund which goes to a fund that’s been struck in an EBA, so people accrue multiple funds over a lifetime and most of them are served insurance on an opt-out basis.

KELLY O’DWYER:

Can I jump in there Geraldine because I think this is an important point.

GERALDINE DOOGUE:

Yes, do. 

KELLY O’DWYER:

There are about 9.5 million accounts with balances below $6,000 and this just gives you a sense of the size and scale of this particular issue and that’s about 43% of all accounts within the superannuation system and most of those accounts, over 60% of those, are actually inactive, so they’re not continuing to receive contributions which means to exactly Patricia’s point, someone has left a job then moved into a new job they’ve got a new fund, they’ve opened up a new account and they’re starting all of this fee payment again, now you’re completely right to say it’s great for the industry, but it’s not very good for the consumer and this is what worries us. 

You’ve got young people out there who for the most part, if you’re under 25 you tend not to have too many assets and you tend not to have dependents and yet they’re paying these very high insurance premiums and this is something, I brought all of the industry together last year and I said to them this is wrong you know you need to do something about it and if you won’t do something about it, I will. 

GERALDINE DOOGUE:

Now Michael the parliamentary inquiry committee made unanimous recommendations didn’t it? One of them was to deal with the fact that the life insurance industry is exempt from parts of consumer law. That seems incredible.

MICHAEL RODDAN:

Yeah and that’s something that’s come up in the Royal Commission again around the behaviour of these insurers. There’s a real sort of anachronism when the law was built, life insurers don’t have to comply with the Consumer Act where they are mandated to act in the best interests of customers and things around the timing and the conduct around the provision of paying a claim so it it’s really strange because most of the other financial services industry is required to play by these rules but the life insurance..

GERALDINE DOOGUE:

Proper prudential requirements. 

MICHAEL RODDAN:

So in the case of CommInsure which was found to be denying claims with outdated definitions of heart attack, which pretty much set off this parliamentary enquiry, ASIC has called out the fact that they weren’t actually able to pursue the company in a lot of the cases where they found questionable behaviour because life insurers were carved out from these proper and fair conduct laws.

GERALDINE DOOGUE:

And they found one quarter of financial advisers banned in the last financial year had given poor life insurance advice. I wonder Minister, are you looking to specifically address that, to make sure that life insurance is fully covered by consumer law?

KELLY O’DWYER:

Well certainly we’ve made some changes already to the way that you can get advice around life insurance and commission payments that are involved there.

We had, I think, quite a scandalous situation where people who were selling life insurance could actually say to somebody you need life insurance, they didn’t actually say up front, although it was buried in all of the documentation, that they were getting 120% commission on that in terms of the premium and after a year that clicked over and so they would go back to the customer and they would say to them actually you need a different, despite the fact that this is life insurance meant to last you over a lifetime, a year on in they’d say actually we think you might need to take out a different policy and again cha-ching there would be a new commission payment and new life insurance would be written for that particular individual.

GERALDINE DOOGUE:

With a big upfront commission? 

KELLY O’DWYER:

With a big upfront commission. Now we have changed that, we have said no big up-front commissions, now there was a lot of noise as a result of these changes. I was not a popular person and there will be people out there who will ring into your program, Geraldine, to say that that was the wrong thing to do, but I’ve got to say that we should always put at the centre of the decisions that we make in government the consumer – what is in their best interests and we need to provide the sort of framework that will protect them.

GERALDINE DOOGUE:

I’m just going to very quickly come back to Patricia because people have written in to say how do you consolidate the accounts if we are going to try to actually streamline the way you’ve done? Is it hard to do?

PATRICIA EVANS:

No it’s not that difficult actually, the funds are actually quite helpful. You choose one fund and say I’d like to consolidate everything into this fund. You then just need to give that fund your other details, details of all the other super funds you have and they will actually consolidate it for you. 

GERALDINE DOOGUE:

They’ll do the grunt work.

PATRICIA EVANS:

They’ll do the grunt work because yes, they’ll end up with the consolidated fund. 

KELLY O’DWYER:

Although, I was going to say Geraldine, although I’m pleased that that’s Patricia’s experience, although I’ve certainly received a lot of emails from younger people who talk about the fact that where they have been covered by an Enterprise Bargaining Agreement and they’ve left that particular job and moved into something else, you’ve got the fund who is there to release the money who doesn’t actually want to release the money, so we need to have a certification that you’ve actually ceased your employment so we need a certificate that you’ve ceased that employment and you’ve moved on to something else before we will release the funds. 

Now again you know it shouldn’t be that difficult, it shouldn’t be that hard, it is the member’s money, it doesn’t belong to the fund and it should actually go where the member wants it to go. 

GERALDINE DOOGUE:

Very quickly Minister, there was a life insurance code of practice finalised last year but it’s not binding is it? And do you want to change that? 

KELLY O’DWYER:

Well look, there have been people in the industry who I think have tried to make some change, some positive change in this space. It does concern me that this particular code of practice, and I think codes of practice will be properly looked at by the Royal Commission, this particular code of practice of course isn’t remotely binding. There is no enforcement mechanism for it so it’s a lot of worthy aims without really any stick.

GERALDINE DOOGUE:

Watch this space. I’m just looking at my clock going, I’m afraid I’m going to have to call time on you. Thank you very much indeed for joining us.

KELLY O’DWYER:

Great pleasure.