A bill, which builds upon the previously passed ‘Protecting Your Super Package’, recently passed through parliament. In this article, we explore the combined impact of these pieces of legislation.
Written and accurate as at: 14 Oct 2019
In our article, ‘Legislative update (Bills): To be, or not to be… (Part 1)’, we discussed the fact that a number of Bills lapsed due to the dissolution of parliament ahead of the 2019 federal election.
Furthermore, when parliament resumed post-election, if the desire remained to proceed with these Bills, then they would need to be introduced as new Bills and make their way through the parliamentary process.
With this in mind, the Treasury Laws Amendment (Putting Members’ Interests First) Bill 2019 was introduced on 4 July 2019 and received royal assent on 2 October 2019.
The Bill builds upon the overarching objective of the previously passed Treasury Laws Amendment (Protecting Your Super Package) Bill 2018 – to protect a person’s retirement savings.
Although, it’s important to note that the Bill did receive several amendments. These amendments were made in recognition of, for example:
- the timeframe required to properly implement the measures contained within the Bill,
- the high-risk nature of some occupations, and the subsequent need to exempt them from the measures.
Below is an overview of these two pieces of legislation. Of particular note is their combined impact with regards to insurance inside of super (life, total and permanent disability and income protection insurance).
Putting members’ interests first
In summary, from 1 April 2020 (amended, previously 1 October 2019), trustees are prevented from providing opt-out insurance to a MySuper or choice product member where:
- the account balance that relates to the product is <$6,000 and has not been $6,000 or more on or after 1 November 2019 (amended, previously 1 July 2019);
- the member is under the age of 25 and begins to hold the product on or after 1 April 2020 (amended, previously 1 October 2019).
If the member meets one of the abovementioned criteria, the trustee may only provide insurance where:
- the member has elected to obtain or maintain the insurance cover,
- the member has been classified (by the trustee or trustees) as being employed in a dangerous occupation, for example, an emergency services worker (police, fire, or ambulance service).
Once a member reaches age 25 and has a balance over $6,000, trustees must provide opt-out insurance to MySuper members and may provide opt-out insurance to choice members.
Please note: These measures, excluding the dangerous occupation exception, were previously contained in the Treasury Laws Amendment (Protecting Your Super Package) Bill 2018. However, they were carved out.
The majority of stakeholders support the measures. However, this has not been without concerns*:
- “Given the recent implementation of the Protecting Your Superannuation Package, the changes may result in members becoming confused about their funds’ insurance arrangements.
- The age limit [should be changed – lowered] to one where the member is ‘most likely to be in full-time work and/or have financial dependants’.
- The risk to young members is not limited to members in high-risk occupations given the volume of claims relating to mental illness.
- The changes [regarding low account balances] are likely to disproportionately impact certain cohorts, including new or returning workforce entrants and those re-entering the workforce from an extended period of casual or part-time work, in particular, women.
- Low-balance account holders are exposed to risks which should be insured against, for example, they have a spouse/and or dependants.
- Premiums are likely to rise both for those who are defaulted into insurance as well as those who elect to opt-in.”
Protecting your super package
In summary, from 1 July 2019:
- Trustees are prevented from
- charging certain fees and costs exceeding 3% of the balance of a MySuper or choice product annually where the balance of the account is <$6,000 at the end of the fund’s financial year;
- charging exit fees on all super accounts, regardless of a member’s balance;
- providing opt-out insurance to members with inactive (have not received a contribution or rollover in the previous 16 months) MySuper or choice accounts, unless a member has directed otherwise.
- Trustees are required to transfer inactive low-balance (<$6,000) MySuper or choice accounts to the ATO, and the ATO will be given greater capacity to proactively reunite Australians (and their active account) with their lost, unclaimed and inactive super.
Importantly, a member’s inactive low-balance account may still be considered active (and not transferred to the ATO), where the following occurs:
- the member changes their investment options,
- the member makes changes in relation to their insurance coverage,
- the member makes or amends a binding beneficiary nomination,
- the member, by written notice given to the ATO Commissioner, declares that they weren’t a member of an inactive low-balance account,
- the super provider was owed an amount in respect of the member.
The majority of stakeholders support the measures. However, this has not been without concerns^:
- “The fee cap may lead to a reallocation of fees and charges to members who have account balances that are greater than $6,000, or alternatively lead to a reduction in services for those members with lower account balances.
- The definition of inactivity may cause detriment to certain groups, including, for example, those taking parental leave and/or intermittent workers.
- Although the precise amount is debated, insurance premiums are likely to increase both because the insurance risk pool will be reduced and because high-risk members are more likely to opt-in.”
As you can see from above, these two pieces of legislation are quite impactful, particularly when considering their combined impact with regards to insurance inside of super, now and into the future.
Importantly, whether these changes are relevant to you will depend upon your personal circumstances. With this in mind, it may be an opportune time to touch base with your super to consider their relevance.
And, remember, you are not alone; we are here to help.
If you have any questions regarding this article, please do not hesitate to contact us.
*Australian Government (2019). Bills Digest no. 32, 2019–20.
^Australian Government (2018). Bills Digest no. 32, 2018–19.