As a result of new laws, (1 July 2019) you will longer see superannuation providers diminishing member balances with untoward or unnecessary insurance and exit fees. Plus, accounts that are inactive with low balances will be moved to the ATO to attempt to link the unclaimed superannuation with their owners. These changes do not apply to self-managed superannuation funds or small APRA (Australian Prudential Regulation Authority) funds.
Insurance Within Members Superannuation Fund
Up until the end of the 2018/2019 financial year, superannuation providers had to supply their members with suitable Life and Total and Permanent Disability (TPD) Insurance inside superannuation on an ‘opt out’ basis. That is, the insurance was automatically put in place when you became a member of the fund.
For many people, such as young people with no dependants and those with insurance cover elsewhere, this caused an issue as these default insurance premiums were a key factor in their superannuation balances being eaten away as people simply didn’t realise, they had insurance inside their funds.
As of 1 July 2019, superannuation providers can no longer charge a default insurance fee to any member with an inactive account. An inactive account is deemed to be one that has not had any activity, rollovers or contributions for a continuous period of 16 months. If the member has elected to maintain the insurance this will continue even on inactive accounts. This rule doesn’t apply to active accounts new or existing; therefore default insurance will be applied unless your opt out.
What to Do If This Default Insurance Change Affects You
If this default insurance change affects you, you need to decide if the insurance held in your super fund is needed. If the insurance isn’t required or you have insurance elsewhere, the premiums will reduce the amount in your account. If insurance is needed, insurance cover can often be cheaper through superannuation and your cashflow will not be affected as the premiums come out of your super fund. Please speak to HBG Tax and Accounting if you are unsure of your needs.
Your superannuation funds website will contain a PDS (product disclosure statement) detailing the insurer they use and the details of the cover available. Employer default super funds usually provide death and TPD insurance cover and may be available without health checks. You can normally decrease, increase or cancel your default insurance cover within the account as your circumstances vary.
ATO will attempt to Consolidate Inactive, Low balance super accounts
There is over $17.5 billion in unclaimed superannuation currently owed to Australians. From 1 July 2019, superannuation providers must report and pay inactive low-balance accounts to the ATO twice a year, the ATO will then attempt to consolidate the superannuation.
These accounts include:
- inactive low-balance accounts (an account that has been in-active for 16 months and has a balance less than $6,000)
- former temporary residents who leave with unclaimed superannuation
- lost member accounts that are small or insoluble
- members aged 65 years or older, non-member spouses and deceased members with unclaimed superannuation
A Reduction in Fees and Charges
The 2019/2020 financial year also sees exit fees (including fees on partial withdrawals) stopped for all superannuation fund members no matter what their account balance.
If a member’s final superannuation fund balance is less than $6,000 in a year, new caps apply to fees charged by superannuation providers. Administration and investment fees and other imposed charged on these accounts will be capped at 3%. Anything over 3% that has been charged, needs to be reimbursed to members within 3 months.
This article was written based on information supplied from Knowledge Shop Newsletter July 2019.
The material and contents provided in this article is of an informative nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.