The Superannuation Guarantee payment for employees began in 1992, and since then it seems that there have been endless changes to the rules. As we approach then end of the financial year, Licensed Financial Adviser, ROD LINGARD looks into how we can all prepare ourselves for the recent series of changes.
The rules surrounding Superannuation seem to be constantly changing and it’s often difficult to keep up, however this year there are some changes that could have a significant impact on your financial situation now and well into the future.
Starting on 1 July 2019, Insurance policies will be cancelled for ‘inactive accounts’.
If your superannuation account has not had any contributions either by you or your employer for a continuous period of 16 months, regardless of the balance, then your insurance will be cancelled.
To put it in simple terms, you will not be covered if the unthinkable happens. Super funds are required to inform fund members they are at risk of having their insurance cancelled and give them the option to retain their insurance cover, even if they are not making regular super contributions.
Why the change?
Like most things in life, this issue can be viewed from a number of perspectives. Many people have a number of superannuation funds, some of which have insurance attached to them. The issue is that the premiums required to keep the insurance ‘in force’ are deducted the superannuation balance.
It is quite often the case that people don’t keep track of their superannuation funds, and the balances are slowly being eroded by insurance premiums. Obviously if superannuation balances are being reduced by insurance premiums, there will be less funds available in retirement. By cancelling the insurance on ‘inactive accounts’ there will be much less balance erosion as a result of insurance premiums.
On the other hand, people often assume that there is insurance attached to their old superannuation polices, and don’t take the time to ensure they are adequately covered. Can you imagine the additional grief if the unthinkable happened, and then you were to find the insurance you thought you had was now cancelled? What would happen if you tried to claim on your insurance, only to be told that the policy had been cancelled?
Another change in the new financial year is the closure of inactive super accounts.
If you have an inactive super account with a balance of less than $6,000 it will be closed automatically and the balance transferred to the Australian Taxation Office (ATO), which will then use data matching technology to combine the low balance amount with one of your active super accounts. In effect, the ATO will be providing a superannuation consolidation service.
So what does it all mean?
Quite simply, it’s a great time to review your insurance and superannuation needs.
For most Australians, particularly those with home loans, adequate insurance is vital to protect the financial future of you and your family. But it does come at a cost.
Paying for your insurance via your superannuation fund may solve some current cash flow issues, but it may be at the expense of your retirement benefits.
So what is the best solution to secure your financial future?
Sit down with a financial planner and create a plan that caters for your needs both in the present and into the future.
Rod Lingard is a licensed Financial Adviser at Lifestyle Connexion and can be contacted on 07 3240 4800 or 0400 160 46. He is authorised by AON HEWITT FINANCIAL ADVICE LIMITED | AFSL #239183
General Advice Warning: This blog is not designed to replace professional advice. It has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the advice, in light of your own objectives, financial situation or needs before making any decision as to what is appropriate for you.