Key Changes to Superannuation Insurance from 1 July 2019

Understanding the Key Changes to Superannuation Insurance Effective 1 July 2019

The Federal Government's reforms to superannuation insurance, effective from 1 July 2019, were designed to address the problem of inactive superannuation accounts incurring unnecessary fees and duplicate insurance policies. Here’s a detailed look at these changes and their implications:

What Constitutes an Inactive Account?

An inactive superannuation account has not received any contributions or rollovers for 16 months or more. The reforms aimed to identify and address such accounts to prevent erosion of members' retirement savings due to ongoing insurance premiums and account fees.

Key Changes Implemented

Automatic Cancellation of Insurance for Inactive Accounts:

• Any superannuation account deemed inactive (no contributions for 16 months) had its insurance cover automatically cancelled from 1 July 2019.
• Members who wanted to retain their insurance coverage needed to either contribute to their account or notify their fund of their intention to keep the insurance before the cut-off date.

Member Communication and Action:

• Superannuation funds were required to notify members with inactive accounts about the impending cancellation of their insurance coverage. These notifications confused recipients who were unsure about the necessary steps.
• Members had to respond by either contributing or explicitly opting in to retain their insurance coverage. Failure to do so resulted in the lapse of their insurance.

Impact on Insurance Claims:

• These changes did not affect existing claims for Total and Permanent Disability (TPD) or income protection lodged before the account became inactive.
• Members with ongoing TPD or income protection claims could continue to receive benefits as long as they had insurance coverage when they became disabled.
• However, members who had not yet lodged a claim but were eligible could still proceed with their claims based on their coverage status when they last worked or became disabled.

Reduction of Duplicate Accounts and Fees:

• The reforms were part of a broader effort to consolidate superannuation accounts, thus reducing multiple fees for members with several accounts.
• This move aimed to enhance retirement savings by eliminating redundant fees and insurance premiums that eroded account balances over time.

Lost Members and Potential Issues

A "lost member" is a superannuation member for whom the fund has lost contact and who is inactive (i.e., no contributions or rollovers for a specified period). Lost members pose several potential issues:

• Unclaimed Superannuation Monies: Lost members' accounts often have unclaimed superannuation monies, which can be transferred to the Australian Taxation Office (ATO) if the account balance is low. This transfer can complicate the process of reclaiming superannuation and disrupt insurance coverage.
• Lack of Communication: Without current contact details, funds cannot communicate important information about policy changes or the need for action, leading to unintended lapses in insurance coverage.
• Multiple Accounts: Lost members are more likely to have multiple superannuation accounts, each incurring fees and insurance premiums, which can significantly erode retirement savings.
• Loss of Insurance Cover: Lost member accounts with inactive status will lose their insurance cover if the member does not take action to maintain it. If a member becomes disabled or dies after the insurance lapses, they may not be covered.

Members must keep their contact details updated with their superannuation fund to mitigate these issues.

Practical Steps for Members

Verify Account Activity:

• Check their superannuation accounts for recent contributions. You can do this through their MyGov account, by contacting the Australian Taxation Office (ATO), or by seeking expert advice.

Make Contributions or Opt-In:

• To maintain insurance coverage, members could voluntarily contribute to their superannuation account or notify their fund that they wished to continue their insurance.

Understand Insurance Needs:

• Members were encouraged to consider their insurance needs, especially if they had health issues, worked part-time, or had financial obligations like a mortgage. Keeping the insurance coverage could provide significant financial security.

Seek Professional Advice:

• Given the complexities of these changes, it was recommended that members seek advice from financial counsellors or legal experts like Claimsplus Lawyers. These professionals could help members understand their options and ensure their interests were protected.

Conclusion

The 2019 changes to superannuation insurance were a significant step towards safeguarding Australians' retirement savings from unnecessary fees and ensuring more streamlined and effective superannuation management. Members needed to be proactive in understanding these changes and taking the necessary steps to maintain their insurance coverage where needed.

Contact Claimsplus Lawyers or visit the Claimsplus Lawyers website for detailed guidance and assistance.

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