In an online article, SuperConcepts executive manager Nicholas Ali said that, following the passage of the Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2018 in February, members may lose their insurance cover if the account does not receive employer contributions or rollovers for a period of time, because it will be considered an inactive account.
“Where an APRA-regulated trustee identifies a member with a superannuation account, which on 1 April 2019 had been inactive for at least six months, the trustee must have given the member a written notice before 1 May 2019 that stated that from 1 July 2019, the fund would not provide the member with insurance cover if the account remains inactive,” Mr Ali explained.
The written notice also explained that cover could be maintained if the member elects to do so and the method for making this election, he said.
Mr Ali said it is common for SMSF members to maintain insurance in an APRA-regulated fund due to group premium rates being lower in such funds and also to avoid the burden of going through an underwriting process.
“Therefore, the fund member will often leave enough money in the APRA-regulated fund to cover the cost of insurance premiums for the period of time the member needs the personal risk cover,” he said.
Under these amendments, if no contributions or rollovers are made to their APRA-regulated fund for a continuous period of 16 months or more, their account will become inactive.
“Unless the member then provides a direction to the APRA-regulated fund for their insurance cover to be maintained, their cover will lapse,” he said.
“Furthermore, if their balance in the APRA-regulated fund falls below $6,000, their balance may then be transferred to the ATO and ultimately paid to their SMSF or any other active superannuation account the member may have at the time with a balance greater than $6,000.”
Although the legislation specifically prohibits a superannuation account, which provides insurance cover to the member, being transferred to the ATO, this protection is lost if the account is inactive and the insurance cover lapses.
“It is therefore crucial [that] SMSF members consciously make the decision to elect to maintain the cover by notifying their APRA-regulated fund that holds the cover as soon as possible,” he said.
To clarify:
It is not just receiving “employer contributions or rollovers” it is any amount, apart from investment earnings, credited to the member’s account. Therefore, it is all contributions or rollovers.
SMSFs cannot hold life insurance in APRA regulated funds. It is the members of a SMSF who may have an interest in an APRA regulated fund that has life insurance attached to that interest.
So much for “protecting your super” – it’s really about protecting the big fund’s profit margins. They don’t want small accounts.