Written by Hudson Adviser Ivan Fletcher
If this does not impact you it may impact other family members or friends, so feel free to pass this article on.
SAVE YOUR INSURANCE BEFORE 30 JUNE 2019
Under new superannuation laws, which start on 1 July 2019, super funds must CANCEL (WITHOUT DELAY ) your insurance cover if no money has been added to your account (e.g. a contribution or rollover) for 16 continuous months, unless you let them know in writing that you’d like to keep your insurance. The intended purpose of the new super laws are to make sure super members do not pay for more cover than they need? need (or perhaps have never really elected to have in the first place), in order to give your super the best chance to grow.
My CONCERN – With this Sweeping Legislation
The unintended consequence can be that a member with a deliberate and intentional insurance policy (Death Cover, TPD or Income Protection) within their super fund could have this CANCELLED effective 30 June (1 months time) if the super fund in question has not received contributions in the last 16 months.
There could be several reasons why you do not have recent contributions to a super fund. One that is common is someone who has only retained an old super account for the existing insurances but has the lions share of their balance plus all current contributions going to another preferred super fund.
The point is – the New legislation could have unintended consequences by causing your super fund to cancel your insurance and the onus is on YOU to act before 30 June to ensure it is kept active.
Low Risk - If your insurance is in the same super fund that receives regular contributions (e.g. employer or personal contributions every month or every quarter), then it is highly unlikely you are at risk as you need a 16 month absence of contributions to trigger the cancellation of your insurance (bear in mind that this can happen at any time in the years to come if you suddenly have an absence of contributions).
High Risk (non working spouse) – If you are currently not working due to family duties (example on maternity leave) then you could easily travel 16 months without contributions and thus your Super fund would be forced to cancel your insurances (unless you OPT IN).
High Risk (multiple funds) - If you have multiple super funds but only one receives contributions, then you are High Risk of having any existing insurances in your dormant super funds cancelled.
High Risk (Self employed) – If you are genuinely self employed (ie do not receive any wages) and are not legislated to pay yourself super regularly, in leaner times of your business, optional super contributions may be cut to nil as your ride out the lull in your business. After 16 months, of abstaining from voluntary contributions, you will lose your Insurance (unless you OPT IN).
What is Your Super Fund Doing ?
As per Legislation requirements your super fund should have communicated in hard copy to you via your MAILING ADDRESS in April, warning you that from 1 July 2019, they may cancel insurance cover on accounts that have been inactive (i.e. no money has been added via contribution or rollover) for 16 continuous months.
Does Your Super Fund Have Your Current Mailing Address ?
If they can’t reach you, then they can’t warn you.
What You Need To Do ?
1. I highly recommend you check to see if you have any super funds that are idle or passive/inactive from a contribution perspective that also has some form of insurance policy within the super Fund.
2. Once identified, contact those super funds to OPT IN to keep your insurance (if that is your preference).
You only have to do this once (not every year). Every super fund will have a method (hard copy form or via login) for you to communicate your intention to Opt In.
You can of course review your level of insurance cover and reduce it at any time.
The purpose of this email is to avoid UNINTENDED CANCELLATION by your Super Fund upon 30 June.
Small Balances Transfer to ATO
Accounts which have been inactive for 16 months and have balances of less than $6,000 and DO NOT hold insurance, may be transferred to the Australian Tax Office (ATO) starting from October 2019, subject to some exceptions. The ATO will now be required to consolidate transferred monies to an active account within 28 days of being satisfied it is possible to pay that amount to an active account.