Government takes action on inactive superannuation accounts
New rules were passed by Parliament in February 2019 as part of the Treasury Laws Amendment (Protecting your Superannuation Package) Bill 2018.
Essentially, the provisions are aimed at superannuation fund members who have small balances across a number of funds, which all charge an individual series of fees. In these cases, there tends to be duplication of the fee structures across funds and this can erode superannuation balances over time.
An inactive low balance member is defined as somebody who hasn’t made a contribution to the superannuation fund concerned for more than 13 months and also has an account balance with the fund of $6,000 or less. Where there are inactive low balances, the account can be automatically closed and the proceeds transferred to the Australian Tax Office (ATO) to the credit of the member.
The amendments also allow the Commissioner of Taxation to actively pay the proceeds of cancelled inactive accounts into a superannuation members active superannuation account where the combined sums would exceed $6,000, therefore consolidating the superannuation accounts for members.
There are some things that an individual member can do to avoid their account being closed and the balance being transferred to the ATO. Where these are applicable to the financial needs and circumstances of the member, these activities include:
- Change their investment options within the fund;
- Make changes in relation to their insurance coverage held within the fund;
- Make or amend a binding beneficiary nomination; and
- Write to the Commissioner of Taxation, declaring that they are not a member of an inactive low-balance account; and/or
- Make a contribution to the inactive fund.
The other issue to be aware of is where insurance – whether life, total permanent disability or income protection insurance – is ‘contained’ within an inactive account. If your account is inactive for 16 months you could lose the insurance. You can keep your insurance by electing to extend the cover, or by making a contribution.
Superannuation funds are currently communicating with their members regarding these issues so keep watch for any updates that you receive.
Partner, Business & Personal Advisory
Disclaimer: The information provided above is of a general nature. For tailored advice about your specific circumstances please chat to your WLF advisor in your next meeting.