Protecting Your Super Legislation: Inactive Accounts & Insurances

The Protecting Your Superannuation (PYS) Package Bill was passed by Parliament in February 2019 and is designed to protect member balances and hold trustees more accountable. The Package introduces a number of changes, including a complete ban on exit fees, a cap on fees for low balance accounts, insurance cancellation for inactive accounts and transferring inactive low balance accounts to the ATO.

What is the legislative requirement?

What is the first stage of these measures?
Super funds will be required to cancel members’ insurances if contributions haven’t been received for over 16 continuous months and the member hasn’t opted in to continuing their cover. Super funds are required to take a snapshot of members’ accounts effective 1 April 2019, identifying members deemed inactive for a period greater than 6 months, then notify the affected members on or before 1 May 2019 of the changes to give these members the opportunity to continue their coverage beyond 1 July 2019.

What is defined as inactivity?
An account is inactive if the Trustee has not received a contribution or rollover for that account for 16 months or more. When the account receives a contribution, it is deemed to be active for the next 16 months.

What types of contributions are defined as activity?
Employer contributions (including compulsory super guarantee, salary sacrifice and voluntary employer contributions):

  • Any member contributions, including concessional (tax deductible personal contributions) and non-concessional (after-tax).
  •  Spouse contributions.
  • Internal transfers from non-super products.
  • Government co contributions.
  • Low income superannuation tax offset (LISTO) contributions
  • Rollovers from other super funds are deemed a contribution for this purpose.

What types of insurance are affected?
All insurance cover linked to a super account – death, TPD and income protection from both group and retail insurance providers.
Does this only impact default insurance cover?
No. All insurances are included in the legislation. This includes insurance where a member has undergone a full medical assessment (underwritten) for group and/or retail insurance.

What is the impact on members?

Will members lose their insurance?
They will lose their insurance:

  • If at 1 July 2019, members have over 16 months inactivity on that date.
  • From 1 July 2019, 16 months from their last contribution if they have not opted in to retain their insurance. Members will receive confirmation of the cancellation of their insurance.

Are there any other impacts?
Yes. Insurance premiums are expected to increase from 1 July 2019. It is important that members consider the premium increase when making their insurance opt-in decision.
Super funds are required to send inactive accounts without insurance and a balance under $6,000 to the ATO as part of the Unclaimed Super Money (USM) regulations.
Please be aware many more members will have their account swept up as part of USM once their insurance cover is cancelled.

What are a member’s options?

Can members continue their insurance?
Members can either opt-in to continuing their insurance or make a contribution.

How do members opt-in to keep their insurance?
Members can opt-in by notifying their super fund that they want to maintain their insurances. Each super fund may differ in their process; however, members can typically notify their super fund by logging into their accounts online and where available use the opt-in functionality.

Is the opt-in enduring?
For some superfunds, members who have opted-in to continuing their insurance will not be contacted again about any inactivity. Please contact your superfund for more details.

Can members opt-in as part of their insurance or account application?
Yes. Any member completing an application for new cover or to top-up to existing cover will be required to opt-in upfront.

Does the opt-in apply to an individual or an account?
An opt-in is required for each account the client may hold, the opt-in will apply to all insurance arrangements within the account.

Can the member still cancel their cover once they have opted in?
Yes. Members can modify or cancel their insurance at any time.

What happens if a contribution is received before 16 months’ inactivity?
Cover won’t be cancelled; the 16 months inactivity period is re-set and the member’s activity will continue to be reviewed.

Is there a minimum contribution the member must make?

What if a member is receiving income protection benefits?
Government regulations stipulate that members on claim are still deemed inactive if no contributions are received in 16 months and will still be required to opt-in to maintain their insurance.
This will not have an adverse impact on any current income protection payments they may be receiving.
We’ll attempt to contact members on claim by phone during May to ensure they’re aware of the importance of opting in.

What if a member is being assessed for an income protection or TPD claim?
Members undergoing claim assessment are still deemed inactive if no contributions are received in 16 months; and will still be required to opt-in to maintain their insurance.

How often will impacted members receive communications?
From 1 July 2019, all super funds are required to write to members after 9, 12 and 15 months of inactivity. If no contributions or an opt-in has been received in 16 months, insurance will cease, and confirmation will be made in writing after the insurance cancellation.

Source: Written by IOOF Investment Management Limited (IOOF) | ABN 53 006 695 02 | AFS Licence No 230524, May, 2019.