Insurance within super
Insurance in super and low-balance or inactive accounts
10.10 Insurance in super and low-balance or inactive accounts
In 2019, the Australian government passed legislation as part of the Protecting Your Super package of reforms, introducing a range of initiatives aimed at protecting the superannuation balances of individuals with low-balance and inactive accounts.
These initiatives were implemented to address concerns about excessive fees and unnecessary insurance premiums eroding the account balances of such superannuation fund members. Here are the key features of the legislation:
The legislation introduced fee caps for superannuation accounts with low balances. For accounts with a balance below $6,000, the annual administration and investment fees charged by superannuation funds are capped at 3% of the account balance. This measure aims to prevent excessive fees from disproportionately reducing the account balances of low-balance accounts.
The legislation also implemented changes to the provision of insurance within superannuation. For new superannuation accounts opened after 1 July 2019, insurance coverage, including life insurance, total and permanent disability (TPD) insurance, and income protection insurance, is no longer provided automatically. Instead, members must actively opt-in to receive insurance coverage. This measure helps prevent unnecessary insurance premiums from eroding low-balance accounts.
Inactive Account Transfers
To consolidate superannuation accounts and prevent the proliferation of multiple inactive accounts, the legislation introduced a process for automatically transferring inactive low-balance accounts to the Australian Taxation Office (ATO). An account is considered inactive if no contributions have been made for a continuous period of 16 months and the account balance is below $6,000. The ATO then uses data matching to identify and consolidate the accounts to prevent unnecessary fees and insurance premiums.
These initiatives were introduced to safeguard the retirement savings of individuals with low-balance and inactive superannuation accounts by capping fees and preventing unnecessary insurance premiums. By addressing these issues, the legislation aims to protect and preserve the superannuation balances of fund members, particularly those with smaller account balances.
Last modified: Friday, June 23, 2023