New super laws could affect the insurance you have through your super.
Here’s what you need to know.
The federal government has recently introduced two new pieces of legislation: Protecting Your Super (PYS), which took effect on 1 July 2019, and Putting Members’ Interests First (PMIF), effective from 1 April 2020. These laws aim to
help Australians save more for retirement by keeping their administration fees and insurance premiums in check.
While this is good news, it’s important to understand the impact these new laws could have on any life insurance you have through your super – and whether you need to do anything.
Do you have more than one super account?
If you’ve had different employers during your working life, there’s a chance you have super in multiple accounts. The new rules affect accounts that haven’t received any contributions or rollovers in 16 consecutive months or more.
If your super isn’t yet in the pension phase and one of your accounts becomes ‘inactive’, your super fund may have to close the account. They’ll then transfer the money to the Australian Tax Office, who will move it into one of your active accounts.
In this case, any insurance attached to your inactive account will be cancelled. So it might be worth looking carefully at your super arrangements if you have multiple accounts – especially if you’ve been holding onto any inactive accounts specifically for the insurance.
If you’d like to keep your inactive account open so you can retain your cover, simply contact your fund to let them know or find out more.
What’s changing for younger workers?
The new rules aim to reduce insurance costs for younger super fund members. So if you’re under 25 and in the workforce (or you have any family members who are), it’s important to understand what’s changing.
Under the new rules, new super fund members who are under 25 and members (of any age) who have low super balances will no longer automatically receive life insurance. They can still get this cover if they’d like it – they just need to let their fund know.
There are, however, some exceptions to this rule. For example, a worker who is under 25 but in an occupation that’s classified as dangerous may(1) still receive automatic cover.
What kinds of cover could you be losing?
Before the new rules were introduced, most super funds automatically provided some level of life insurance cover to all their members. This may include:
- Death cover, which provides a lump sum to your dependants if you die or become terminally ill
- Total and Permanent Disability (TPD) cover, which pays you a lump sum if you become disabled and are unlikely to ever work again
- Income Protection (or Salary Continuance) cover, which pays a monthly benefit if you get sick or injured and can’t work for an extended period.
These types of cover can be extremely valuable, particularly if you have children to support, or perhaps a family history of medical issues.
What’s more, getting insurance through your super can be a cost-effective way to stay covered, especially if you’re on a tight budget. This is because your premiums are paid directly from your super balance, so you don’t need to cover the costs from your pay packet.
On the other hand, paying your insurance premiums from your super account means that you might end up with a smaller nest egg by the time you retire. You might also find that the types and levels of cover available through your super fund are too limited and don’t have enough flexibility for your needs.
So if your insurance is likely to be affected by the new super laws, think carefully about whether you’d like to keep your existing cover or find an alternative.
Your adviser can help
Everyone has different financial circumstances and needs, so there’s no one-size-fits-all situation when it comes to your insurance cover. That’s why it’s so important to work with your financial adviser to find the right insurance plan to suit you.
(1) This depends on further conditions including whether the fund trustee has notified APRA in writing that the dangerous occupation exception will apply and the election is in force.