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The Protecting Your Super Package of reforms commenced on 1 July 2019. These reforms are designed to protect your super accounts from being eroded by insurance policy fees and premiums that you may not require, as well as help to consolidate your low balance super accounts.
This article outlines each of the key reforms and how they may impact you.
Insurance within inactive super accounts
Under the Protecting Your Super legislation, your super fund will be required to cancel the insurance cover that goes with your super account if it is deemed to be inactive (in other words, if you haven’t contributed a payment to your super account for more than 13 months).
However, your super fund is required to inform you if you’re at risk of having your insurance cover cancelled and to give you the option to retain it even if you’re not making regular super contributions. Super funds have been progressively contacting inactive members ever since the legislation was announced.
Should you cancel insurance coverage you have in super?
Cancelling your life insurance is an important decision and it’s one that shouldn’t be taken lightly. If you have dependants or a significant amount of debt, it’s important to have an appropriate amount of life insurance coverage. Your super accounts may currently be automatically providing you with the following cover:
- life insurance
- temporary and permanent disablement insurance, and
- income protection insurance.
It’s important to understand that your premiums for this type of cover will generally be cheaper through your super fund than they will be if you obtain the cover yourself. Super fund insurance coverage may also have reduced (or no) medical examination requirements prior to obtaining it.
However, if you have multiple super accounts, it’s possible that you’ll be paying for life insurance coverage through each of them. You may be paying for more cover than you actually need, unnecessarily reducing your super balance.
It’s important to do an audit of your total life insurance cover through all of your super accounts to see if it’s adequate for your specific financial circumstances BEFORE you decide whether or not to cancel any insurance cover through your super. Your insurance needs will change during different stages of your life.
If you’ve changed jobs several times over the years and aren’t sure how many super accounts you have, you can check via the myGov website. You should then contact each of your super funds to check how much life insurance coverage you have across all your super accounts.
Learn more about how insurance in superannuation works.
Closure of inactive super accounts
If you have an inactive super account with a balance of less than $6,000, the new legislation requires it to be closed automatically by your fund and the balance transferred to the Australian Taxation Office (ATO) by 31 October 2019. The ATO will then use data-matching technology to combine the low balance amount with one of your active super accounts.
Learn more about finding your inactive accounts and consolidating your super.
Cap on fees for low balance accounts
If you have a small, active super account with a balance of $6,000 or less at the end of a financial year, your fees will be capped at 3% per annum under the Protecting Your Super reforms.
Switching funds without exit fees
Exit fees are also banned under the new legislation, allowing you to switch your super fund without having to pay any penalty or fee.
Removal of ‘opt out’ insurance for active super fund members under the age of 25
Prior to the introduction of the Protecting Your Super Fund reforms, super funds could provide insurance coverage to members under the age of 25 under an ‘opt out’ basis. This means that insurance coverage could automatically be provided by a fund unless a member under the age of 25 formally ‘opted out’ of receiving it.
However, from July 1, 2019, super fund members under the age of 25 must formally ‘opt in’ to obtain life insurance coverage. Younger super fund members typically have lower fund balances and lower life insurance coverage needs, so this reform prevents their lower balances from being further eroded unnecessarily.
The introduction of the Protecting your Super Package of reforms provides you with an opportunity to review all your super accounts and any associated life insurance coverage you have. It’s important to do that review to ensure you have the right amount of insurance cover for your needs. If you have too much, you may be reducing your super balance unnecessarily. If you have too little, you may be exposing yourself and any dependents to financial risk.