On 18 February 2019, the Federal Government passed the ‘Protecting Your Super’ (PYP) package which prevents trustees of APRA-regulated funds from providing insurance to members with inactive superannuation accounts (unless otherwise directed by a member). The PYP package is designed to protect superannuation savings from unnecessary erosion by fees and insurance costs, with superannuation accounts that have been inactive for 16 months to have their automatic insurance switched off.
This significant change comes into effect on 1 July 2019 and is likely to affect more than 3 million Australians. However, alarming statistics suggest that more than 50% of Australians are unaware that these changes are coming, along with one in four not even knowing if they have life insurance attached to their superannuation1.
It is common practice for many individuals with a self-managed super fund (SMSF) to also have a secondary APRA-regulated fund which provides them with insurance. This may be done for a variety of reasons:
- To access insurance policies provided by large superannuation funds, as these are often cheaper.
- To keep legacy insurance policies which may offer lower premiums and/or better benefits than new policies.
- They can no longer take out new policies because of pre-existing medical conditions.
In these circumstances, it is most likely that people holding these policies through an APRA-regulated superannuation fund will consider that their SMSF is their primary superannuation account and as such it will receive all of their contributions and rollovers.
It is usually the case that people will leave enough money in their APRA-regulated fund account to cover the cost of insurance premiums. Where required they may rollover funds from their SMSF to their APRA-regulated fund or make a contribution to pay for insurance premiums and administration fees to keep their insurance policy.
Under the new legislation, your insurance cover will be terminated if your APRA-regulated fund is considered inactive because it has not received a contribution or a rollover for a continuous period of 16 months.
This could have a severe impact on policyholders or their beneficiaries if their insurance cover was unknowingly terminated. In addition to this, it may be extremely difficult and/or costly to try and access insurance at a later stage of life.
What can I do to maintain my insurance cover?
It is crucial that you take the necessary steps to maintain your insurance cover as soon as possible if you wish to do so. You can either:
- Contact your fund and inform them that you want to ‘opt-in’ for your insurance cover to be maintained.
- Make a contribution or rollover to your ‘inactive’ fund to reset the period for which your fund is considered inactive. However, you must also make sure that you ‘opt-in’ as above.
Significant changes such as this can be confusing to navigate, so please don’t hesitate to contact our superannuation experts on (03) 9810 0700 or email@example.com if you have any concerns or questions regarding your circumstances.
Hanh On | Partner
T: +61 3 9810 0733
1. According to data from the Association of Superannuation Funds of Australia (ASFA).
This article is intended for general discussion and is not intended to represent specific advice. Banks Group shall not be responsible for any entity that acts on any of the comments in this article without first obtaining specific advice from Banks Group.