A new bill recently passed by Parliament is set to impact super members with multiple low-balance accounts, particularly those with automatic insurance cover attached to their account.
Known as the Protecting Your Superannuation Package, the new legislation has been introduced to address concerns that people holding multiple low-balance accounts are less able to build up their retirement savings. From 1 July this year, the ATO will be able to consolidate member accounts that have a balance below $6,000 and haven’t received contributions in 16 months.
The new laws also mean that members risk losing default insurance cover contained in their super if their account remains inactive on 1 July of this year.
Workers often end up with multiple inactive super accounts when they open a new account with a new employer but neglect to transfer the funds from their old one. The old accounts are no longer receiving contributions, but ongoing insurance premiums for default insurance cover continue to reduce account balances – while similar default insurance is generally being offered by the new super fund account.
The new law will step in to ensure that this duplicate insurance is switched off – something that the Productivity Commission reported was costing $1.9 billion a year in excess insurance premiums.
It is important that those who have stopped contributing to their account for another reason (e.g. maternity leave or OE) are aware that they may lose insurance cover on 1 July 2019.
Super funds will be writing to members who will be affected by the new requirements in the coming months, and members are urged to engage with their funds to determine if they hold insurance cover and whether the cover is appropriate for them.
Those who decide they should keep their cover have until 1 July to advise their super fund.
As Green Party Senator Peter Whish-Wilson stated during the Bill’s debate “nobody needs insurance until they need it”.
By turning off insurance cover on inactive accounts, while at the same time making it easier to change funds and consolidate accounts, the super reforms should help to ensure that Australia’s workers get the cover they need without paying for the services that they don’t use.
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