Protect Your Super and putting members interests first reforms – How does this impact you?

There are a range of new legislations designed to protect superannuation funds from being eroded by insurance premiums and fees. 

Some things to consider:

Insurance

If you have a superannuation fund that is “inactive” for a period of 16 months or more, your Life and Total and Permanent Disablement (TPD) insurance policies may be cancelled.

It is not uncommon for SMSF clients to retain a small amount in an industry or retail fund in order to maintain a life / TPD insurance policy. These funds would often be inactive

Industry superannuation fund, Hostplus, has noted that it has already turned down seven life insurance claims from members who were unaware that the Protect Your Super measures had resulted in the cancellation of their policies.

These measures have the potential to leave many young Australian’s uninsured. 

  • From a TPD insurance perspective, this has the potential to financially burden parents should their adult children have a serious accident resulting in total and permanent disablement.
  • From a life insurance perspective, young families may be left without any insurance. In the event of an accident or illness resulting in the death of one or both parents, This would almost certainly leave partners and children with significant financial stress.

What to do

If your fund is inactive and you would like to retain your insurance you need to either:

Make the fund active, by for example making a contribution, or
Sign your providers form to “Opt in” to continuing your cover.

Inactive Account Transfer

In addition to the above, if your balance is inactive AND below $6,000 funds will be required to be transferred to the ATO who will attempt to combine your accounts.  This will result in the cancellation of any insurance policies.

What to do

As above, if you want your policy to be retained you need to either make your account active or provide your fund with written instructions to retain.

Exit Fees

It is also not uncommon to see clients with super funds that they are retaining simply because of the exit costs that would be incurred on moving the money. Now that this legislation has banned exit fees, it may be worth re-looking at such strategies.

What to do

It may be an opportune time to review old policies, particularly where you have retained them due to the exit costs involved. You should seek advice.

Insurance for Younger Members

From 1 April 2020 super funds must not provide insurance inside superannuation to new members aged under 25 unless they request it.