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There are new rules on the way that will require young adults and members with low super balances to actively “opt in” to holding insurance in super. If you’re in either of these categories, or perhaps have adult children in the workforce, now is a good time to ensure you understand the issues around insurance in super, and to consider what steps you, or your children, should be taking to protect future retirement benefits.
The government is concerned that many Australians are paying for inappropriate insurance policies – sometimes in multiple super accounts – that are gradually eroding their retirement savings. One of the major causes is “opt-out” insurance. Many funds offer insurance to new members automatically, and the member must actively opt out if they don’t want the coverage.
Under proposed new laws to start on 1 October 2019, super funds (other than SMSFs and small APRA funds) will be prohibited from providing insurance on an “opt-out” basis to:
– members aged under 25 years who are starting a new account; and
– members with balances below $6,000, including existing member accounts (ie those with an existing low balance will lose their coverage unless they elect otherwise).
In both cases, the member can “opt in” to insurance at any time. And once the member reaches age 25 and has an account balance of at least $6,000, the restrictions on opt-out insurance fall away.
While the legislation hasn’t yet passed, it raises important issues for all young super members. Here are some points to consider for those members, and parents of adult children in the workforce who can help their kids get on the right track by having a discussion about these basic super issues:
– Take stock: How many super accounts do you have? With multiple accounts, young adults will be paying multiple administration fees and potentially duplicate insurance premiums.
– Be conscious of keeping your super consolidated when switching jobs.
– Do you work in a risky occupation? Perhaps you need income protection insurance more than other young adults.
– Major milestones are important reminders: Life events like marriage or taking out a mortgage on a first home are all events that should prompt members to review their insurance needs.
Need to take stock of your super and insurance arrangements? Contact us for advice on your insurance needs and how we can help you and your family achieve financial security.