Insurance within super
Insurance in super and low-balance or inactive accounts
New legislation was passed in 2019 introducing a number of initiatives to cap fees and prevent unnecessary insurance premiums from eroding the account balances of super fund members who have 'inactive' low-balance superannuation accounts.
Members with low account balance means that they may pay higher than normal fees, and because many people in this situation earn lower incomes, they sometimes pay higher tax on their superannuation than they do on their regular wages.
To address this, new laws were introduced in 2019 as part of the 'Protecting Your Super' package of reforms. The core provisions are:
- Administration and investment fees are capped at 3% for account balances under $6,000
- Exit fees are banned
- Inactive low-balance accounts will be transferred to the ATO for consolidation with their active accounts where possible.
'Inactive' accounts are those where the account balance is less than $6,000 and the members has either not paid a contribution in the past 16 months or has not signed up for their fund's insurance offer.
Reducing insurance premiums on inactive accounts
|In response to concerns that there are thousands of fund members with inactive superannuation accounts who are still paying hundreds of dollars in compulsory insurance premiums, the new law requires funds to identify low-balance inactive accounts and transfer them to the Australian Taxation Office.|
This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.
Last modified: Friday, September 25, 2020