Lawyer warns on early access to super traps
While the government’s plans to amend the early access to super rules for those with a terminal illness are positive for the industry, one industry lawyer has urged SMSF members to consider some important consequences.
The government first announced its intention to amend the provision for accessing super for those suffering a terminal illness back in May.
The provision for early access to superannuation specified that a person with a terminal illness would be required to obtain certification from at least one medical specialist and another medical practitioner specifying that they had less than 12 months to live. The government has moved to extend the life expectancy period for the requirement to 24 months from 1 July 2015.
Speaking to SMSF Adviser DBA Lawyers director Daniel Butler warned that before a member in these types of circumstances takes a benefit from a fund which includes life insurance cover for a terminal medical condition (TMC), the recipient should be aware that by taking all their benefit they may forfeit their rights to any further insurance cover.
“For example, if a member withdrew their account balance from a public offer or industry fund, their insurance cover will generally cease,” explained Mr Butler.
He said it is uncertain when the announced change will actually become effective and that it could take insurers some time to adjust their policies and premiums.
“Let’s say someone is close to being classified as TMC and they get their medical evidence in order, they may seek to get all of their money out of super, but if they’re in one of the large super funds, they’re then going to be disqualified from their insurance,” he said.
“Thus members may wish to carefully check the detailed terms and conditions of maintaining their insurance cover, especially life cover if they subsequently die and may need to retain at least a nominal amount in the fund to maintain that cover. In addition some fund may offer a continuation cover with insurance that can be taken up by the member directly with the insurer without going through all the relevant medical tests, etc. However, if a member with TMC ceases their insurance, albeit innocently, they most likely will be left out in the cold.”
Mr Butler said while this is more likely to impact members or large APRA regulated funds, some SMSF members do hold small amount of money in these funds in order to have access to insurance policies in these large funds.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.