This year, the federal government introduced laws called the Protecting Your Super package. It’s a big deal because it addresses important changes to superannuation that are here to stay. In fact, there’s even been an industry-wide campaign about how it’s time to check your super.
The package aims to protect Australians from super balances becoming eroded by fees and/or premiums in accounts that aren’t being used. And, as a result, encourages us to start being more actively involved with our super.
Important note – unintended consequences
Life cover is medically underwritten which means that if a client’s health, medical situation, BMI etc. is no longer within the recommended levels the cost to replace the cover outside of these products can prove more costly and in some cases, problematic should the communications have been missed and cover un-intentionally cancelled. Furthermore and for these very reasons and as part of the broader financial planning process, funds have been left in older style/mature contracts purely to fund and maintain the life cover.
The good news is that most product manufacturers recognise this and have provided the opportunity to re-instate this valuable cover providing that clients act swiftly and make up unpaid premiums.
Why get involved in your super
It can be easy to set and forget or even lose track of our super. In fact, as of 30 June 2018, approximately 39% of Australians had more than one super account.i
And it’s not uncommon to forget what benefits (like insurance) are included with the account after joining a super fund, as well as how much you’re paying in fees and/or premiums. These fees or insurance premiums can then start to diminish any money in an account that’s not being actively used.
So, the PYS laws were designed to:
- make sure people don’t continue paying for insurance cover they don’t know about, and
- protect low balance super accounts from being eroded by fees.
What’s in the PYS laws?
The PYS laws cover three main areas:
- Insurance inside inactive super accounts
- Inactive super accounts with a low balance
- Fee limits on super funds.
Insurance inside inactive super accounts
Many superannuation plans include insurance as part of their offer. It’s often general cover that’s provided to a set group of people (like employees who sign up to their employer’s super plan).
Under the PYS laws, super providers are required to cancel the insurance in any super account that’s considered inactive (meaning the account hasn’t received any contributions or rollovers for 16 continuous months).
Before they cancel, your super provider must tell you that you’re at risk of having your insurance cancelled and give you the opportunity to choose to keep your insurance. You can stop your insurance from being cancelled by letting your super provider know in writing. If you have more than one super account that’s at risk of being cancelled, you’ll need to let them know in writing for each of the accounts.
Making a super contribution or rollover into an account that’s considered inactive will also stop the insurance cancellation from going ahead – unless the account becomes inactive again for 16 months.iiMaking regular contributions can prevent this. It’s always important to consider your circumstances before making a contribution or rollover.
Inactive super accounts with a low balance
The PYS laws require super providers to transfer any accounts with a balance of less than $6,000, and no contributions or rollovers for 16 continuous months, to the ATO. Some exceptions apply to this, including if you have insurance inside your super account.
If your super is transferred to the ATO, you’ll be able to reclaim it from them. You can do this by logging into your MyGov account and using ATO Online Services.
The ATO may also transfer your super money into another super account you hold. This could happen if your other account has received a contribution or rollover within the current or previous financial year, and the balance after the transfer will be $6,000 or more.
Fee limits on super accounts
Another way PYS laws protect super accounts from erosion is by limiting fees charged by super providers. This includes:
- Capping fees for accounts with low balances– administration and investment fees will generally be capped at 3% pa for accounts with $6,000 or less at year-end.
- Banning exit fees– super funds are no longer allowed to charge exit fees, so you can now switch your super account any time without paying a penalty, although other fees may apply.ii
For any questions about how the Protecting Your Super package affects you, please contact PSK Financial Services to set a time to meet with one of our financial advisers – contact Paul Harrop, General Manager on 02 9324 8831 to organise your complimentary consultation.
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i Australians Tax Office (ATO) – Multiple Super Accounts data. Figures are based on member data reported by funds to the ATO for the year ending 30 June 2017.
ii Things to consider – contributions or rollovers
Before requesting a rollover, you should check with your other fund(s) to determine whether there are any exit or withdrawal fees for moving your benefit, or other loss of benefits such as insurance, noting that you may not be able to obtain the same type or level of benefits after the rollover.
Contributions to superannuation are generally preserved and you cannot usually access your preserved benefits until you reach age 65 or have permanently retired after reaching your preservation age (between 55 and 60 years depending on when you were born). Government prescribed caps also apply to the amount of money you can add to superannuation each year on a concessionally taxed basis. There will be tax consequences if you make contributions exceeding these caps. For more information, speak with a financial adviser or visit ato.gov.au.
©AMP Life Limited. First published July 2019