“Protecting Your Superannuation” Reforms are now in place – what you need to know and the unintended consequences of these changes.
You will be contacted if your account is considered ‘inactive’.
If you receive an email or letter from your super fund enabling you to opt in to keep your insurance – please consider carefully and act.
If you have any questions in relation to opting in please contact your Superannuation Fund – each fund has its own system and Advisers are not able to opt you in on your behalf.
An account is ‘inactive’ if the Trustee has not received a contribution or rollover for that account for 16 months or more.
It doesn’t matter if your account is large or small, if it is inactive then the insurance must be switched off by the Trustee - unless you act to Opt In
A small (< $6,000) and inactive account (no insurance, no recent contributions) will be automatically swept to the ATO (from where you can recover it)
SMSFs are excluded from PYS
As with most generic changes to a system, this can have both benefits and unintended consequences such as: -
losing cheap cover by accident
losing cover with no medical exclusions on it
finding oneself unable to replace that cover down the track due to health events or family health history
Cover such as Income Protection (replaces your monthly pay packet if you are unable to work), Death cover, TPD Cover (a lump paid in the event of a total and permanent event) and Trauma cover (a lump in the event of a diagnosis of a serious condition like cancer) can change your life in the event of a health challenge – enabling you to access treatments otherwise unaffordable, cover your bills without stress, enable you to afford your mortgage etc.
The automatic cover granted through super funds can be an important part of the puzzle in making sure a health challenge does not derail your life and financial plans.
All super funds in Australia are currently sending out notices.
ACTION is needed if you want the insurance and/or the account to continue to exist. Some funds offer a simple online “tick a box” option – others require a form.
If you fail to respond you may lose valuable cover or lose an account which was strategically left open.
It can be a STRATEGY to leave open a small secondary super fund to hold insurance which is “clean” of medical exclusions and loadings. For example, some clients who apply for cover in their 30s and 40s find their new cover has exclusions or loadings – so keeping some of the automatic cover in super is a way of reducing cost (note this could also be a Super Fund with a larger account balance than $6,000 with insurance without activity/contributions).
Young people are particularly targeted by this new measure – it is vital to stop and think before allowing insurance to be lost.
Young people now may feel they don’t require cover, and arguably Life Cover is not needed by many younger people without mortgages or dependents
However in the event of your disability or illness, a TPD or income protection payment could assist your family in looking after you over the long-term, even over the rest of your life, without bankrupting them
In addition, down the track when mortgages and babies arise, and insurance to provide for these becomes vital, your health may preclude you then from increasing cover
As such we recommend that younger clients think carefully about opting in, in order to retain the cover, rather than allow this “clean” cover to disappear
You may wish to share this blog update about WHY a person may want to opt-in to continue their insurance, if you feel a friend or other family member should think about taking action before 1/7/2019.