There is a fairly big change coming to insurance within retail super and, although it doesn’t impact SMSFs, it could potentially impact SMSF members, particularly those who have retained a retail super fund purely for the benefit of the insurance held within it. This change is known as Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018.
This bill bans exit fees and places caps on admin fees for balances under $6,000 in retail funds, but the main impacts will be seen with the sections of the bill relating to Insurances and Inactive low balance accounts.
Unless directed by a member, a fund can not offer insurance on an opt-out basis (unless “dangerous occupation” exemption applies, or if the employer is contributing an additional super amount to cover the insurance premiums for the member) if:
- The account has been inactive (no contributions or rollovers) for 13 months
- The account has a balance of less than $6,000; OR
- It’s a new account and the member is under 25 years of age
On 1 April 2019, trustees of non-SMSF / SAF super funds will be required to do an audit of their members’ accounts to determine which members have an account which:
- Has a balance of less than $6,000; OR
- Has been inactive for 6 months or more
For each of the funds identified which fall into these categories, the trustees must issue a written notice before 1 May 2019 to advise that:
- The fund will not provide the member with insurance cover, from 1 July 2019, if the account remains inactive / balance remains below $6,000
- The member can elect for the cover to remain active; AND
- How the member is to make this election
Even if a member has previously opted in to their insurance cover, they will be required to do so again, as any previous election will be made void. If they fail to make this new election prior to 1 July 2019, they could be in danger of losing their insurance cover.
Inactive low balance accounts
In addition to the above insurance rules, the Bill also includes regulations regarding the payment of inactive low balance super accounts to the ATO, where:
- The account balance is less than $6,000; AND
- The account has been inactive for 13 months or more; AND
- There is no opt in insurance held within the account
Example: Mary has a super fund which she has retained purely for the insurance benefit within it, which is opt out cover. She has not been actively using the account, so no contributions have been made for more than 13 months and the balance is currently $5,000 which is more than enough to cover over 6 months’ worth of her insurance premiums.
If Mary fails to opt in to her insurance prior to the 1 July 2019 deadline, not only could she lose her insurance cover, but her account balance, upon the cancellation of the insurance benefit, would then be required to be transferred to the ATO as an inactive account as it no longer holds insurance.
For further details, you can have a read through Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018.
Alternatively, feel free to give us a call on 1800 24 23 22.
The information contained in this article is factual and based on our understanding of the legislation. This should not be considered financial advice, as no personal circumstances have been taken into account. If you require financial advice, please speak to your financial adviser. If you do not have a financial adviser, please feel free to contact us and we can put you in contact with someone who may be able to assist.