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A raft of new changes to superannuation come into effect at the end of this financial year. Do you know what they mean for you?
Admit it, you skimmed the headline about superannuation in favour of the celebrity gossip or the sports news, didn’t you? Fair enough. But in case you missed the details, there are important changes coming to superannuation, and they might affect you. So it’s a good idea to read on.
Under the new Federal Government’s “Protecting Your Super” package of reforms, which have been passed by parliament: Account balances of less than $6,000 which have also been inactive for at least 16 months will be paid to the Australian Tax Office, and then consolidated with the member’s active super account.
The government has also introduced a fee cap of 3% on accounts with balances under $6,000, and exit fees, where they exist, will be banned.
Any life insurance purchased through a fund where a member account has been inactive for at least 16 months will be cancelled on June 30.
The first two of these new regulations would seem pretty straightforward and, in most cases, they’re a positive move by the government. Essentially, if you think you might have more than one superannuation account (this is entirely possible if you have had more than one employer) and you’ve been meaning to get around to consolidating everything into one single fund and haven’t done it yet, the government will now do it for you.
But, but BUT! And this is important. If you hold default insurance cover in these funds – life and total and permanent disability are usually the standard – and you have medical conditions that may prevent you from securing new insurance cover in the future, then you will need to hold onto this cover. When insurance funds are consolidated, insurance is lost. So, you need to check in with your super fund right now -. particularly if you have pre-existing medical conditions – to find out what insurance cover you hold with them, and make arrangements to retain this cover.
If you don’t have a need to retain default insurance policies, then there are good reasons for consolidating super. Basically, it’s easier to keep track of when it’s all in one place, and you also save on fees and charges. The government’s move to cap fees and charges on these smaller super accounts is also a good thing. If they’re virtually inactive (no contributions being paid in) then they’re just getting eaten up by fees, anyway.
The third change is the most important right now, especially if you haven’t been regularly contributing to your superfund.
Maybe you are self-employed and don’t make a regular payment, or you have been unemployed for a lengthy period of time, or you’re a stay-at-home parent not regularly topping up super or receiving a spousal contribution. This particular change could also affect you if your employer has not paid mandated employee contributions on a regular basis.
Check with your fund. Your fund may have already notified you. If not, call, or check your account online. Check the type of insurance cover you have and decide whether you want to keep it. You must ‘opt in’ by the end of June, or you could be left without insurance cover.
At Step Up Financial Group, financial planners based in Orange, NSW we recommend more personalised cover than the generic policies in your super.
Have you ever considered trauma insurance or total and permanent disability cover for your ‘own’ occupation, or income protection insurance? Have you ever considered the benefits of ‘level’ premiums, over ‘stepped’?
Most Australians are great at insuring cars and homes and boats and caravans, but fall well short when it comes to making sure they’ve got the right insurance to kick in if they can’t work anymore, or if something unexpected happens to a family member that stops everyone in their tracks.
It’s not easy or pleasant to consider these things – one of your kids being diagnosed with cancer, or having an accident that means you can’t work, and therefore can’t earn an income anymore, or having a life-threatening illness. It’s confronting. But you know what’s more confronting? Not being able to keep the lights on, or the fridge full, or the mortgage paid, particularly when you’re in the middle of a life-changing tragedy.
Insurance is one of those things you hope you never need. But you’re really grateful for it if you do. And it’s not just about having enough insurance cover to maintain your lifestyle and pay the bills, it’s about having the right cover, without being over-insured.
If you’d like to know more about personal insurance, talk to us. In the meantime, make sure you check your superannuation. June 30 is the deadline. And it’s not that far away.
The information contained in this article has been prepared without taking into account your individual objectives, financial situation or particular needs – it is GENERAL ADVICE ONLY. Before acting on any information in this article, I recommend that you consider whether it is appropriate for your individual circumstances.