Posted on 22/11/2019
Over the last year, a number of new superannuation laws have been passed by the Government which may affect the retirement savings of millions of Australians.
But what are they, and how do you know if you’re one of those who could be affected?
Whether you’re in the early stages of your working life, mid-career or are already enjoying retirement, our guide to the recent superannuation changes will help you understand these changes and how they may impact your financial position, now and into the future.
Super changes impacting young Australians
The most recent changes to super, passed in September 2019, are included in the ‘Putting Member’s Interest First’ (PMIF) legislation. PMIF has been designed to prevent the erosion of superannuation balances, in particular for young Aussies and those with super balances of less than $6,000.
Taking effect from 1 April 2020, this piece of legislation was introduced to ensure your super balance is not eroded by insurance premiums.
To understand how this piece of legislation might impact you, let’s first break down how insurance within superannuation works.
Aside from providing you with an income in retirement, most super funds also offer their members some important insurance options.
Death (or Life) Insurance, Total & Permanent Disability Insurance (TPD) and Income Protection (IP) Insurance are the three most common types of insurance provided through superannuation funds, designed to give members peace of mind in the case of an unexpected life event. In the majority of instances, a ‘default’ level of cover is automatically provided to members when they join a superannuation fund, with members able to cancel or ‘opt-out’ of this insurance at any time.
Taking out and paying for Death, TPD and/or IP insurance through your super fund can be much more affordable due to a thing called ‘Group Insurance’, this generally provides insurance at a more competitive price then if you were to sign up as an individual. Due to their size, super funds also have significant buying power, giving them the ability to negotiate better premiums with insurance providers, and pass the savings on to you – their member.
But how does this all tie back to the (PMIF) legislation?
Well, from 1 April 2020, if you are a new member who has a superannuation balance of less than $6,000 or you are a new member under 25 years of age, superannuation providers can only provide insurance on an "opt-in" basis – meaning insurance won’t be automatically provided and you need to elect to receive this cover when you join.
This will help ensure you’re not paying premiums for insurance you might not want, or already have, however it may leave you unprotected if you aren’t aware of this change.
For Statewide Super members, as part of the transitional arrangements, if your balance is under $6,000 and has not been above $6,000 since 1 November 2019, Statewide Super is required to cancel your insurance cover on 1 April 2020 – unless you tell us you want to keep it.
You can view your account balance and the insurance you hold with Statewide Super in your secure Statewide Super Online portal, if you are at risk of losing your insurance you will be notified by Statewide Super. Once logged in you can also reduce or cancel your insurance cover at any time . If you want to learn more about PMIF you can read the PMIF Fact Sheet or give our friendly Member Services team a call on 1300 65 18 65.
Additional changes impacting Australians
Another piece of legislation that has impacted superannuation accounts this year is Protecting Your Super (PYS). PYS introduced the first changes to insurance in super, as well as the consolidation of inactive low balance accounts, removal of exit fees and capped fees for low balance accounts.
Low balance and inactive accounts
From 1 July 2019, if you have an ‘inactive’ account, which means you have not received any amount (including a contribution or rollover) for a continuous period of 16 months and you haven’t (before the expiry of a 16 month period of inactivity) elected in writing that you would like to keep your insurance, your super fund can no longer provide you with that insurance. This measure was introduced to minimise the erosion of ‘inactive’ accounts (by continuing to charge insurance premiums), unless a member elected to keep their insurance.
Consolidation of accounts
While over the past five years, the number of individuals who have consolidated their super accounts has steadily increased, 36% of Australians still hold multiple super accounts. Under the Protecting Your Super (PYS) legislation, your super fund may be required to transfer the balance of your account to the Australian Tax Office before 30 April 2020, if it is classified as an ‘inactive low-balance account’ on 31 December 2019.
‘Inactive low-balance accounts’ are those which have not received any contributions or rollovers for a continuous period of 16 months, and have a balance less than $6,000.
Exit & capped fees
Exit fees on any withdrawals from superannuation have been banned.This change came into effect on 1 July 2019, meaning that regardless of which fund your superannuation is with, you will no longer pay any exit fees regardless of your account balance.
In addition to the banning of exit fees, if you have an account with a balance of less than $6,000 on 30 June of a financial year, your total annual administration and investment fees that may be charged for that financial year will be capped at just three per cent per annum of your total account balance (as determined on 30 June). This means that some members may receive a refund of some of the fees charged over the course of a financial year if the fee cap applies.
Changes impacting retirees and pensioners
As well as the PMIF and PYS legislation, another change to superannuation that has been passed may impact retirees and pensioners – in a good way.
A key change that came into effect on 1 July 2019 provides retirees aged between 65 and 74, who have a superannuation balance below $300,000 on 30 June of the previous financial year, the opportunity to make voluntary super contributions for an additional 12 months, following the end of the financial year in which they last met the requirements of the work test.
This exemption is only available for one 12-month period in an individual’s lifetime, yet for some retirees it could make a significant positive impact on funding their retirement.
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