Changes to superannuation rules that will affect particular client accounts were recently made law. The aim of the legislation is to protect members, particularly those with low superannuation account balances, from account erosion due to excessive fees or insurance premiums.

The Treasury Laws Amendment (Protecting Your Superannuation Package) Bill 2019 (‘Protecting Your Super’) makes a number of key changes to the existing superannuation legislation from 1 July 2019, including:

• The removal of exit fees on all superannuation accounts;
• A 3% cap on all administration and investment fees for balances below $6,000;
• Consolidation of low balance inactive accounts via the Australian Taxation Office (ATO); and
• The removal of insurance cover from inactive accounts, unless the member specifically requests the Trustee keep this in place.

These changes apply to all MySuper and Choice superannuation funds including WealthFoundations, WealthSolutions, ClearView Superannuation and Roll-overs and the ClearView Pension Plan.

Communicating to members

Importantly, these changes will require Trustees of superannuation funds to update communications to increase member awareness of their insurance arrangements. More frequent insurance inactivity notices will also be required to be sent to members from 1 July 2019.

ClearView will be providing further details on these changes to impacted advisers from April onwards, together with copies of notices that may impact your clients.

Further details on the changes

Removal of exit fees

From 1 July 2019, superannuation funds will be prohibited from charging an exit fee to members that relates to the disposal of all or part of a member’s interests in a superannuation fund.  Buy-sell spreads on the sale or disposal of units are still permitted.

This will help ensure that members are not disadvantaged if they choose to consolidate multiple superannuation accounts into one account by having their account balance eroded when they leave an existing superannuation fund.

Cap on ongoing fees

The legislation has placed a cap of 3% on the administration and investment fees that can be charged by superannuation funds where the member’s account balance falls below $6,000. This fee cap will be assessed either when the member exits the fund or at 30 June each financial year, and any investment or administration fees charged on these accounts in excess of the cap will need to be refunded by the superannuation fund.

Consolidation of inactive low-balance member accounts via the ATO

The Government believes that members receive a better financial outcome when they have fewer accounts, as they are paying fewer fees on multiple accounts.

The ATO will now match and consolidate member’s low balance inactive accounts with existing active accounts where possible. Members who have inactive accounts where the account balance is less than $6,000 will have these accounts consolidated with the member’s current active account.

An updated definition of inactive accounts included in this consolidation process has also been included, and is an account where:

• no pension payments have been made;
• no concessional or non-concessional contributions have been received;
• no ad-hoc lump sum withdrawals have been made;
• no rollovers have been made into or out of the fund;
• the member has not changed their investment options;
• the member has not changed their insurance coverage;
• the member has not amended a binding death benefit nomination; or
• the member has not satisfied any conditions of release.

Insurance in Superannuation

Contained in the same legislation was a new law regarding life insurance inside superannuation. This requirement now makes it mandatory for a member of a superannuation fund to opt-in to retain their existing life insurance cover if the account has been inactive for more than 16 months.

It is important to note that the definition of inactive accounts in this situation is different to the inactive account definition above. For the opt-in insurance requirements, an inactive account includes those accounts where:

• no pension payments have been made;
• no concessional or non-concessional contributions have been received;
• no ad-hoc lump sum withdrawals have been made; or
• no rollovers have been made into or out of the fund.

In order for the Trustee to continue to provide insurance coverage for a member who has been inactive for 16 months, the member must opt-in by either sending a letter, email, text, or telephone call (must be able to be recorded by the Trustee) to the Trustee informing them that they wish to retain the life insurance.

If no declaration or nomination is made by the member within 16 months of last activity, then the Trustee must cancel the life insurance.