From 1 April 2020, super funds will no longer be able to provide insurance automatically to members if the member is under 25 years old or has an account balance of less than $6000.
For existing super fund members, regardless of age, the new rules mean insurance will be cancelled if they have a super balance below $6000 unless:
Insurance will be available on an opt-in basis for members under 25 and for members with balances under $6000. This means that the members may elect in writing to take out or maintain insurance.
There are a few exceptions to the new rules. Super fund members in occupations that are classified as dangerous will continue to be covered automatically.
Super fund trustees were required to write to fund members to inform them of these changes, to give them time to review their options.
Last year, Australian Securities and Investments Commission wrote to super fund trustees expressing concern that many trustees are not communicating adequately with members over the issue.
The latest changes are part of a series of reforms designed to protect the retirement savings of young people and those with low balances by ensuring their super is not unnecessarily eroded by fees and premiums on insurance policies they may not need.
Since 1 July last year, super funds have been prohibited from charging insurance premiums for inactive accounts, which means any account that has not had a transaction for 16 months.
There is a cap of 3 per cent on fees charged by super funds on accounts with balances below $6000. Exits fees on all super funds are banned.
All inactive accounts with balances of less than $6000 will be transferred to the Australian Taxation Office. The ATO will expand its data matching process and reunite inactive accounts with the members’ active account, where possible.