If you hold insurance cover in a superannuation account separate to your SMSF, you might need to take action to ensure this cover continues.
When you set up your SMSF, did you follow a common strategy of rolling over most of your accumulated balance from an industry, employer or other retail-type fund, leaving a small amount behind so that you can keep your insurance cover going? Or likewise open a retail or industry super account just to obtain insurance cover?
New laws in place mean you probably should check on the account, otherwise you might lose that all important insurance cover.
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 your insurance cover.
* These rules apply to basically all superannuation accounts except SMSF and 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 will affect insurance arrangements put in place both before or after 1 July 2019, and inactivity prior to this date will count 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.
Members 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 and be given the opportunity to elect (in writing) for their insurance to continue. The fund will inform those members how they can opt-in if they choose to.
What do I need to do?
If you have a super account somewhere that holds insurance cover that you intend to remain in place, and is in danger of being considered “inactive”, you can either:
- contribute or rollover an amount to it to make it active (if you are eligible to do so), or
- submit a valid election in writing to obtain or maintain your insurance cover.
Contributing or rolling over to the account will only make it active for up to 16 months, after which you would have to do either of the above again. You only have to submit the opt-in election once, so it’s a more permanent solution.
As stated previously, expect to hear from your super fund about this. However if you have changed address and the super fund hasn’t got your new address details, you should get in touch with them to update your contact details.