In addition to the Government’s proposed changes to the contribution rules for older Australians and also exempt current pension income, they’ve proposed a couple of miscellaneous amendments.
Under current law, from 30 November 2019, rollovers to or from SMSFs will need to be made via SuperStream (ie via electronic means rather than paper-based). The aim of this change was to reduce compliance costs for SMSFs and also improve the integrity of the superannuation system by increasing the ATO’s ability to verify SMSF data.
Whilst system changes are already in progress to facilitate this change, the Government has proposed deferring the commencement date from 30 November 2019 to 31 March 2021.
From this date, SuperStream will also be expanded to include requests for the release of monies from superannuation via release authorities (eg where an individual has exceeded a contribution cap).
Changes Already Legislated
As is often the case, in last night’s Federal Budget the Government took the opportunity to remind us of some of the changes which they have already legislated. One of these, which has not received much air-play to date, is the change to default insurance and inactive member accounts.
When setting up an SMSF, it is a common strategy for individuals to roll over most of their accumulated balance from an industry, employer or other retail-type fund leaving a small amount behind so that they can keep their insurance cover going. Likewise, opening a retail or industry super account just to obtain insurance cover is an often used strategy.
New laws recently legislated mean individuals in these situations should review the account which holds their insurance cover, otherwise that cover may be lost.
From 1 July 2019, trustees of a MySuper or choice fund* are prohibited from providing insurance where:
- the member’s account is inactive for a continuous period of 16 months or more, and
- the member has not elected to obtain or maintain insurance in that fund.
In other words, from 1 July this year a member must “opt-in” to continue to hold insurance in an inactive super account, or make the account active. Failure to do so could mean the trustee will cancel the insurance cover.
* These rules apply to basically all superannuation accounts except SMSF, small APRA funds, defined benefit members, Australian Defence Force Super members, or members whose employer covers the full cost of the insurance premiums (over and above the employer’s super guarantee obligations).
What is an Inactive Super Account?
A member’s account is considered inactive simply if no contributions or rollovers have been received into it for a period of 16 months. Once a rollover or contribution is received, the 16-month period is reset.
This change affects insurance arrangements put in place both before or after 1 July 2019, and inactivity prior to this date counts towards the 16 months. For example, a super account where no contributions or rollovers have been received since 1 March 2018 will be considered inactive on 1 July 2019.
What do Individuals need to do?
Where an individual holds a super account somewhere with insurance cover that they intend to remain in place, and the account is in danger of being considered “inactive”, they can either:
- contribute or rollover an amount to the account to make it active (if they are eligible to do so), or
- submit a valid election in writing to obtain or maintain the insurance cover.
Contributing or rolling over to the account will only make it active for up to 16 months, after which they would have to do either of the above again, whereas individuals only have to submit the opt-in election once, so it’s a more permanent solution.
Individuals who have insurance arrangements in their super accounts and who might be affected by these new rules can expect to hear from their super fund in the next few months. They will be given the opportunity to elect (in writing) for their insurance to continue (if they choose to do so).