On 14 March 2019, the government introduced a package called “Protecting Your Super”which was designed to protect superannuation accounts. It was designed to prevent inactive superannuation accounts from being eroded by inappropriate insurance arrangements, as well as protect small balances from being eroded by fees. The new legislation, which was called Protecting Your Super is now law and the measures will start applying from 1 July 2019.
One of the major components of the protecting your super legislation is that superannuation funds are no longer able to provide insurance to members with an inactive superannuation account. However, the member can make an election to retain the insurance cover. If your superannuation account is deemed to be inactive and you do not contact your existing superannuation fund prior to 1 July 2019, the insurance will be cancelled.
Superannuation funds are in the process of contacting members that are affected. However, it is suggested that if you are unsure or have not heard from your superannuation fund that you call them to check if this impacts your insurance within superannuation. If you are unsure or are unable to check with your superannuation fund please let us know and we will happily investigate further for you.
Protecting Your Super and Low Balances
Under the new legislation an account is deemed to be in active for insurance purposes if they have not received a contribution in the last 16 months or have not received a rollover for the past 16 months. Another part of the protecting your super legislation is that all superannuation accounts which meet the following criteria are required to be transferred to the ATO:
- The account is below $6000
- No life insurance is held in the account
- The member has not met a condition of release
- The account has been in active for a continuous period of 16 months
Some of the benefits of the Protecting Your Super legislation is that there will be a 3% cap on Investment, Administration and Indirect Costs for balances under $6000 and a ban on exit fees regardless on the account size.
Protect Your Super and Insurance
The new legislation will impact insurance arrangements within super that are in place before 1 July 2019, as well as any insurance taken out on or after 1 July 2019. The trustees of the superannuation fund are obligated to notify members who have insurance in place before 1 July 2019 and who might be affected by the new legislation. This is to provide them with an opportunity to keep their existing insurance.
On 1 April 2019, superannuation funds identified members accounts that have been inactive for a continuous period of six months (from 1 October 2018 to 31 March 2019). Prior to 1 May 2019, the trustee must give those identified members written notice that there insurance may be impacted. The notice would’ve stated that from 1 July 2019 that the insurance will no longer be provided by the superannuation fund and that the account remains inactive for 16 months or that the member has not elected to maintain insurance cover. The notice will also set out the method by which the member may continue their insurance.
So what can you do…
Members who have an account that is deemed inactive immediately before 1 July 2019 who want to maintain insurance will have a few options.
- They can either contribute or rollover an amount to their superannuation account prior to 1 July 2019 to make it active.
- They can submit a valid election in writing to the Super Fund prior to 1 July 2019 to obtain or maintain insurance cover.
Members whose accounts become inactive after 1 July 2019 will have to either contribute or rollover an amount to their superannuation account prior to 16 months of inactivity or submit a valid election in writing to the Super Fund prior to 16 months of activity to obtain or maintain insurance cover.
The final option is to do nothing, which may result in you having an inactive account after 16 months and the insurance will cancel.
By contributing or rolling over funds to a superannuation accounts this will only rectify the inactivity for 16 months. Alternately, if a valid written election to their fund is made this only has to be done once, the election will apply for the future.
Please note that the new insurance rules do not apply to:
- SMSFs or small APRA funds, or
- defined benefit members, or
- Australian Defence Force (ADF) Super members (or a person who would have been an ADF Super member if they had not exercised choice), or
- members who have an employer who makes contributions to a fund on their behalf. If this is the case, this is in addition to superannuation guarantee obligations and these contributions cover the full costs of the member’s insurance premiums.
How to check if you are impacted…
The easiest way to check if you are impacted by the new legislation is to contact your superannuation provider and ask them. If you are unsure what superannuation accounts you have then you could login to MyGov, go to the ATO section and under the ATO section it will list all your superannuation accounts.
The final option is to check the letters that your super funds are obligated to send you. The only issue with this option is that the super fund would need to have the correct address listed.
In the future
The regulation requires a trustee to provide a written activity notice to clients who have an account that has been inactive for a continuous period of 9, 12 and 15 months. The activities notice will state:
- The length of time the account has been in inactive,
- The account will be active again if a contribution is paid into the account,
- The date on which the insurance will cease to be provided if there is no activity,
- The amount of insurance fees charged in the funds most recent income year,
- The amount of insurance likely to be charged on the funds current income year,
- If the insurance will cease due to the governing rules of the fund or due to the client not electing to maintain insurance,
- Set up whether or not it is possible for the member to elect to maintain insurance and if so the method by which the member can make the election.
If you have received any communication of this sort or suspect that you may be impacted by this new legislation please contact your existing superannuation fund to check. Alternatively, we would be happy to do a review your insurance to see if you are impacted. Please send us an email at email@example.com
The information posted is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided and the nature of the relevant financial product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS) or other offer document prior to making a decision.