There has been a lot of noise in the last couple of weeks about changes to superannuation that take affect from 1 July 2019. The changes arise due to some Productivity Commission recommendations. Their purpose is protect your retirement savings by limiting superannuation funds’ ability to charge fees and insurance on certain accounts. So, the big questions: does it apply to you? Will you lose out? and What do you need to do before 1 July?
The important changes apply to accounts which are considered inactive and those accounts will low balances. An inactive account is one which has had no contributions for 16 consecutive months. An account will be a low balance account if it holds a balance of less than $6,000. If you have a low balance account, there will be a limit on what fees can be charged to the account.
If your account is inactive, regardless of the balance in the account, any insurance on the account will be cancelled. You may not be aware, but many superannuation funds automatically include a default life insurance policy. According to the Association of Superannuation Funds in Australia, up to one if four people do not even know if they have life insurance in their super fund. So if you have been out of the work force for an extended period and your account is made inactive, it may mean that you no longer hold a life insurance policy. If your account is inactive, you can elect to continue with the insurance cover, but this requires you to contact your fund.
If you have an account which has a low balance AND is inactive, your account will be transferred to the Tax Office who will attempt to match the balance to a members active account. This may be a good thing, IF the Tax Office is able to match your accounts. If it can’t the balance will remain with the Tax Office until it can be verified.
The final major change in the system is that super funds are not allowed to charge exit fees if you choose to move your super to another fund. This will be important in allowing you to easily change funds if you decide that your current fund is no longer suitable or where you have more than one fund. Now there really is no excuse not to consolidate those funds!
BUT do you know how many superannuation funds you actually belong to? The easiest way to find out the answer to this is to log onto your MyGov account and if it isn’t already, link to the Tax Office. When you go into the Tax Office, scroll down to the Super section and it will tell you how many super accounts you have. Easy!
Don’t be an ostrich! Make sure that the new changes to super don’t adversely impact you. Here’s your to do list:
- If you aren’t already, register for MyGov and link your ATO account. See how many funds you have.
- If you have more than one fund, consider consolidating into one. This reduces fees and charges.
- Read all information provided by your super fund – you will probably have received correspondence from your Super Fund if you are potentially affected. Open your mail
- If you have an inactive account, and you still aren’t sure if you have life insurance coverage, call your fund.
- If you do have insurance, consider whether you want to retain the insurance coverage. You will need to make an election to keep the coverage by contacting your fund. Alternatively you can make a contribution to the account to prevent it being made inactive.
Need some help to sorting out the super fact from fiction? I offer a FREE 30 minute initial consultation. You can easily book online here and I look forward to helping you sort your finances!