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.
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Read reference to SMSF trustees holding insurance in a retail fund as SMSF member holding that insurance.