A note from AFRM Managing Director, Nicholas Hatherly – 1 May 2019
Re the Federal Government’s Protecting Your Super Package reforms:
The purpose of this communique is to alert you to the fact that on 12 March this year, the Federal Government’s, Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019, was passed into law and associated regulations commenced on 6 April 2019. Accordingly, you may have recently received a letter or email from your superannuation fund advising you of the changes to come. It is important that you take the time to read these communications and consider the impacts these reforms will have on your personal situation.
Known as the Protecting Your Super Package (PYSP) reforms, they are focused on member-based funds (not Self-Managed Superannuation funds) and are designed to protect the superannuation savings of Australians from erosion due to inappropriate fees and insurance premiums as well as reduce unintended multiple low balance accounts. The reforms involve the following changes:
Insurance will be opt-in for members whose accounts have been inactive for 16 months.
Fund members with balances under $6,000 whose accounts have been inactive for 16 months will have their accounts paid to the Australian Tax Office (ATO). The ATO will take proactive steps to consolidate this with the members’ active super fund.
Fee caps will be imposed on certain fees for account balances under $6,000.
Exit fees will not be charged for moving money from a superannuation account.
It is important for everyone to note that, as a result of these reforms, if you don’t take specific action to opt-in to keep your insurance cover ‒ if you do indeed want to continue being protected by that cover ‒ then that insurance cover provided via your superannuation fund will be terminated. You need to be careful about this oncoming change. If you have had a medical condition or injury you may never be able to get insurance cover back again once it is gone. Before cancelling any of your superannuation-related insurances ensure that you have considered your financial risk and have adequate replacement cover in place. AFRM can help with that assessment. On 17 April 2019, the Australian Securities and Investments Commission (ASIC) published a warning to superannuation trustees calling on them to ensure they; “provide helpful and balanced communications to their members regarding the PYSP reforms, which are due to take effect on 1 July 2019.” Again, if you don’t take action to opt-in to keep your insurance cover held in your superannuation fund, then that insurance cover will be terminated. When issuing the warning on 17 April, ASIC Commissioner Danielle Press said:
“Erosion of superannuation through unnecessary fees and premiums for potentially unsuitable insurance is a significant issue for many Australians.” “Most consumers are not aware of the fees and insurance premiums charged to their superannuation accounts or the steps they can take to avoid unnecessary reduction in their super balance.” “The PYSP changes will encourage the consolidation of multiple low-balance superannuation accounts and help ensure members have insurance arrangements that are suitable for them without unnecessarily eroding their super balance,” Ms Press said. “ASIC expects superannuation trustees to implement the changes in a timely manner and communicate responsibly – their communications need to help their members.” “It is not appropriate for trustees to encourage all members to maintain insurance – many members with inactive accounts will be better off allowing the insurance to lapse. Similarly, trustees should not be urging all members with low-balance accounts to keep their account within the fund as this may not be in the best interests of members,” Ms Press said.
ASIC has said it may act against superannuation trustees if it forms the view that their communications to members regarding the PYSP break the law through misleading communications. As you know, AFRM is a financial risk mitigation advisory service. Accordingly, we urge all our clients to take the time to review their own personal situation and how these regulatory reforms may impact upon their own financial position. If you are not sure, feel free to give us a call. We will provide you the best advice we can to ensure your best interests are protected. ASIC has also provided consumer information on the PYSP changes on its MoneySmart website at the following links:
ASIC has also said it is working closely with the Australian Prudential Regulation Authority (APRA) and the Australian Taxation Office (ATO) to ensure the PYSP legislative changes are implemented appropriately. The changes mean that the ATO has the power to reunite members with any lost super that the ATO holds. The ATO estimates that approximately three million accounts worth approximately $6 billion will be proactively consolidated as a result of these reforms. The Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 received royal assent on 12 March and associated regulations commenced on 6 April 2019. As I said at the outset, the purpose of this communique to:
alert you that these reforms have been enacted
provide you with as much balanced and relevant information about these reforms as we can
strongly advise you to take the time to familiarise yourself with these reforms
consider how they will impact your own situation, and;
decide on whether or not you want to opt-in to retain any insurance cover you may have through your superannuation funds.
Again, if you are not sure, feel free to give us a call. We will provide you the best advice we can to ensure your best interests are protected. Yours sincerely, Nicholas Hatherly. Managing Director AFRM