Sole practitioners vulnerable with insurance in super changes
Sole practitioners and small business owners are one of the groups most at risk of losing the insurance in their super fund under the new Protecting Your Super measures, as they don’t tend to contribute on a regular basis, a law firm has cautioned.
With the new protecting your super reforms set to commence next month, SMSF professionals should ensure their small business clients in particular have made an election to maintain their cover.
New laws that were part of the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018 will mean that insurance cover for superannuation accounts deemed inactive will be switched off.
An account will be deemed inactive if it has not received a contribution for 16 months or more.
Speaking to SMSF Adviser’s sister title, Lawyers Weekly, Shine Lawyers national special counsel of consumer disputes Will Barsby explained that for sole practitioners and boutique principals, it is often the case that profits generated during the first couple of years are reinvested back into the business to help it grow.
“What we often see with owners of small business is that they overlook making superannuation contributions to their own account. This often happens when a practitioner leaves a firm as an employee and sets up their own firm. They will generally keep their super fund and insurance attached to it — but overlook making contributions into it,” he said.
“The new rules will mean that practitioners may be covered as at 30 June for serious injury or illness and wake up on 1 July to having no cover at all and be ineligible to reinstate it.”
A sole practitioner who has started their own firm and hasn’t taken out any insurance cover outside of their superannuation fund, he said, may find themselves uninsured come 1 July.
“[They] may get caught out if they don’t opt in or get independent financial advice about making sure they have the right life insurance generally,” he said.
A recent survey revealed that around half of all Australians were unaware of the changes happening with default insurance in super and that only 19 per cent felt they had a good understanding of what the changes meant.
SMSF clients who hold insurance cover in an APRA fund may also need to make preparations for the changes happening in July.