New laws passed in the Senate may affect members of the self-managed super funds who still keep a small balance in their industry fund for insurance purposes.
What’s changing
The major changes are:
- All inactive accounts with balances of less than $6000 will be transferred to the Australian Taxation Office
- Fees with be capped at 3 per cent of the balance of an account annually if the balance is less than $6,000
- Exit fees on all super funds will be removed, regardless of member’s account balance
- You will now have to opt-in to insurance cover if you are under the age of 25 years; you have a balance of below $6,000 or your account has not received contribution for 13 months and is inactive. It won’t happen by default.
Previously, insurance cover was provided automatically. Now, fund members will be required to decide if they want the life cover through their super fund.
These changes are due to come into effect from 1 July 2019.
Why is it changing?
The purpose of the changes is to protect the member’s retirement savings and ensure their super is not consumed by fees and premiums on insurance policies.
It will empower the Australian Taxation Office to auto-consolidate ‘lost’ accounts into a members’s active account, unless a member reject consolidation.
According to the ABC, there are an estimated 9.5 million super accounts in Australia with a balance of less than $6000, so the impact of the changes will be widespread.
Will you receive notice?
For inactive accounts
The Bill requires regulated superannuation funds to ensure that on 1 April 2019 account balances that have been inactive for the previous six months are identified, and on or before 1 May 2019 each member associated with such accounts is given written notice specifying:
- insurance will not be provided from 1 July 2019 if the account is inactive for 13 months and
- the member can by written notice elect to take out or maintain that insurance.
If, after 8 May 2018 but before 1 July 2019, the member gives the fund written notice by taking out or maintaining insurance in relation to the product, the fund is not required to provide notice to the member.
For low-balance accounts
Superannuation funds must identify members with insurance products whose account balances are less than $6,000, and on or before 1 May 2019, they will be given written notice specifying:
- that from 1 July 2019, the fund will not provide the member with insurance if they have not had an account balance of $6,000 or more on or after 1 April 2019 and
- the member can by written notice elect to take out or maintain that insurance.
Notice does not need to be given by the fund, if before 1 April 2019 the member gives the fund notice by taking out or maintaining insurance in relation to the product.
If a member begins to hold a product under which insurance may be provided after 1 April 2019 but before 1 July 2019, the fund must provide the member with written notice stating that the fund will not provide the member with insurance from 1 July 2019 if the member has an account balance of less than $6,000 and, on or after 1 April 2019, the member has not had an account balance of $6,000 or more and the member has not elected to take out or maintain insurance notwithstanding a low balance account.
What should you do?
It is important that you do not ignore communication that you may receive from your industry super fund regarding this change.
If you have low, inactive balances, you may be prompted to move those accounts before July 1. When those funds are transferred, your life insurance cover will cease.
You should seek advice on your current superannuation situation and consider what might be the best decisions for you. For most Australians, life insurance is imperative, so addressing the impact of this law change is vital.
If you would like further assistance, do not hesitate to contact our office on 03 8393 1000, and we can help to discuss your options and find the appropriate solution for you.
