Protecting Your Super reforms from 1 July 2019

The first phase of the “Protecting Your Super” legislation comes into effect on 1 July 2019. These reforms are designed to protect Australians’ retirement savings by ensuring their super isn’t unnecessarily eroded by fees and premiums on insurance policies they may not need. 

There are two main points that everyone needs to be aware of (including your family members) with 1 July approaching:

1. Super providers need to cancel the insurance in any super account considered inactive. An inactive account is any account that has not received any contributions or rollovers for more than 16 months.

Before taking action, your super provider must tell you that you are at risk of having your insurance cancelled and give you the opportunity to choose to keep your insurance. You can stop your insurance being cancelled by letting your super provider know that you want to keep your insurance. This is important as we have many clients who keep an old Super fund in place purely to maintain their existing insurance cover.

Making a super contribution or rollover into an account that is considered inactive will also stop the insurance cancellation from going ahead. Making regular contributions can also prevent an account becoming inactive again.

The legislated start date for this measure is 1 July 2019. If your account is identified as inactive your super fund must attempt to contact you before then to give you the opportunity to choose to retain your insurance.

Many individuals hold insurance policies through a Master Trust (insurance only) Superannuation fund.

When you hold insurance within a Master Trust (Eg Asteron, TAL, OnePath, MLC for example) as is the case for many of our clients, the insurance premiums need to be paid more often than every 16 months, otherwise the insurance will lapse. This is because there is no accumulated super balance to cover the cost of the premium. For example, if a member’s account has an annual partial rollover funding their insurance, their account will never be deemed inactive as the premium will be paid every 12 months. However, clients with this arrangement may still receive a warning letter when their account is inactive for nine months.  This is because relevant Superannuation funds must provide warning letters to members when the member’s account has been inactive for 9, 12 and 15 consecutive months. Obviously these insurance only funds will be inactive after 9 months as the premium is not due until the 12th month.

2. Inactive super accounts with low balances will be closed

Many inactive accounts with a balance of less than $6,000 will be closed, and the balance transferred to the Australian Tax Office. Where possible the ATO will then use data matching to connect these super accounts with an active account of the member.

Unfortunately, many younger Australians have unopened mail on their kitchen table and may find themselves uninsured as of July 1 2019. Most affected will be unsuspecting members that are currently sick and not contributing to superannuation or those on maternity leave or Centrelink benefits where they are not making regular contributions.

For many clients, the above issues are not of concern, however, it may be worth raising the issues with family or friends who don’t have access to advice. The default position for Australians should be a quick call to their respective funds to see if their account and insurance will be affected in any way.