New laws designed to help people consolidate their superannuation accounts could result in people losing the insurance cover, unless they contact their Super fund. The laws, which take effect from 1 July, will mean that life and disability insurances will lapse if your superannuation account has been inactive for 16 months. Inactive accounts with less than $6,000 in them could also be affected.
Most people with superannuation have insurance cover attached to their superannuation account. If you have joined a fund through your employment, you will usually have automatic cover put in place once the fund receives Superannuation Guarantee contributions from your employer.
The laws were amended to stop people’s superannuation balances being eaten away by fees and insurance premiums, which is a positive step. But 70% of Australians have life insurance cover through their super fund, and if their account falls into the inactive or low balance category, they could lose their life, and total or permanent disability funds unless they contact their super fund.
Russel Mason, a superannuation advisor from Deloitte said, “If a member does not advise his or her fund by the first of July, as an inactive member, that they want to maintain their insurance cover, it will lapse…if they come back sometime later, the fund and the insurer may say 'we are happy to reinstate it, but you will have to provide medical evidence that you are in reasonably good health'. An unfortunate consequence in this scenario is that the current insurance policy may already cover any pre-existing medical conditions that exists – but if the cover lapses, it may be impossible to reactivate their cover.
Up to 3 million Australians could be affected by the changes in legislation, and research by the Association of Superannuation Funds of Australia (ASFA) indicates that over half of all Australians are not aware that the changes will take place in the new financial year.
The easiest way to know if you’re affected is to open and read any letters, emails or SMS messages you receive from your super fund. If you haven’t received any communication, but think you should have, reach out to your fund – they may have been trying to contact you at an old address.
If you think you might be affected by the changes, or if you are unsure, it is recommended that you contact your super holder and "opt in" to the new scheme, if they want to keep the cash. The Australian Tax Office (ATO) will have a list of any super accounts you might have. To check, you can link your myGov account to the ATO, and you should be able to view what super accounts you have.
ASFA and the Financial Services Council are jointly trying to raise awareness of the issue, including with a “When did you last check your super” advertising campaign, and also via the “time to check” website which can give you more details on the changes so you can determine whether you might be one of the many Australians effected.
If you haven't already, now is the time to talk to you adviser about consolidating your super and the benefits and detriments of doing so.