Proposed legislation to impact SMSF insurance
The proposed legislation covering lost and unclaimed superannuation accounts, if passed, could have implications for SMSF trustees holding insurance through APRA-regulated funds, says Colonial First State.
Speaking to SMSF Adviser, Colonial First State executive manager Craig Day said if the draft legislation titled Superannuation Laws Amendment (Unclaimed Superannuation Money) Regulation 2015 is passed, it could result in some SMSF trustees losing the insurance they hold through APRA-regulated funds.
Mr Day explained that the draft legislation aims to remove the ‘employer-sponsored members rule’ which will mean a greater number of retail member accounts are likely to be captured as inactive super accounts.
“Currently, to have an inactive account the member needs to have been a member of the fund for more than two years and have joined the fund as a standard employer sponsor,” he said.
“A standard employer sponsor is where a member has joined the fund due to an arrangement or agreement between the employer and the trustee [of the APRA fund].”
Mr Day said that currently, retail members do not tend to be caught by the inactive member rules because they probably did not join the fund as a standard employer sponsor member.
“If we get rid of that rule, then members of retail funds will be caught by the changes and their accounts could theoretically be considered inactive and transferred to the ATO, if their balance falls below a certain amount,” he said.
While the threshold amount is currently quite low, at $2,000, Mr Day said this is legislated to increase to $4,000 in December and $6,000 the year after.
Therefore, Mr Day said, if an SMSF has not made any contributions or rollovers during a five-year period into the account of their APRA-regulated fund and holds less than $6,000, under the proposed legislation, their account would be considered inactive and the money transferred to the ATO.
Once the money from this account is transferred to the ATO, the SMSF trustee would then lose the insurance they held in that APRA-regulated fund, he said.
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.