Changes to default insurance for inactive superannuation members
From 1 July 2019, a new bill will put a stop to insurance premiums being paid out of inactive superannuation accounts, in an effort to reduce the impact these costs have on people holding multiple low balance accounts. With the current superannuation laws, many funds automatically provide insurance when members join; members are often unaware of this insurance and the resulting premiums that are deducted from the funds.
What are inactive accounts?
For the purpose of the new act, an inactive account is defined as one that has a balance below $6,000 and has had no contributions received for a continuous period of 16 months. These accounts are generally the product of a person setting up new accounts with new employers and neglecting to transfer the funds from their old one. Although these accounts will no longer be receiving contributions, ongoing automatic insurance premiums continue to deplete the standing balance, causing duplicate insurance premiums to be paid on multiple accounts by a single member.
This new law calls for duplicate insurance to be switched off, after the Productivity Commission reported excess insurance premiums of $1.9 billion were being paid each year.
Who is affected?
The changes will be applicable to accounts that have a balance of less than $6,000, as well as members who are under 25 when they take out a new product after the 1 October 2019. From 1 July, a trustee must stop providing automatic (default) insurance to a member who has had a product that has been inactive for 16 months or more unless the member has directed the trustee to continue providing insurance.
Exemptions from the bill will apply to self- managed superfunds, defined benefit members, ADF superannuation members or members whose employers pay the full cost of the member’s insurance premium as well as the superannuation obligations.
Although the new law commences 1 July 2019, there is still a significant amount of preparation required by trustees in order to comply with these updated requirements, for example:
Trustees must now ensure that arrangements are put in place to identify members and their accounts that are at risk of becoming inactive. As a member, it is important to engage with your fund to determine if the insurance cover that is currently being held is appropriate.
If you have any questions on the proposed changes in relation to your superannuation accounts, insurance policies, and potentially in relation to your role as a superannuation trustee, please do not hesitate to get in touch with your engagement partner on 02 9283 1666.