Major changes to impact younger people's superannuation
Written by Matt Ireland of the Evolution Wealth Financial Advice team.
Do any of these criteria apply to you or someone you know?
· Do you have a super fund (or multiple funds) with a balance of less than $6,000?
· Are you under the age of 25?
· Have you not made a contribution to a super fund in your name in 13 months or more?
If so, the federal government has announced major changes that will affect the insurance you hold through super.
For context, many super funds provide their members with default insurance cover without performing any health checks or underwriting. This can be incredibly beneficial for people working in dangerous jobs or those with prior health conditions who may not otherwise be able to obtain cover. Other funds allow members to go through underwriting health assessments to ensure that their policies are appropriate for their needs; a lengthy and potentially invasive process.
Unfortunately, many young people don’t realise that they have insurance in their super fund until the ongoing insurance premiums have reduced the balance of a forgotten super account to zero.
Insurance is a topic that should be discussed amongst your family with the assistance of a qualified professional. It is important to weigh up the positive and negative factors before deciding to retain or forego your existing cover. You should ask yourself if you need to pay for the level of cover you have been given, or if you might need this insurance due to a family history or prior health condition.
So what are the changes?
The federal government has announced that as of 1 July 2019, all insurance coverage for people in the above categories will move to an opt-in basis rather than a default basis. This means that you will be required to inform your superannuation fund of your decision to retain any insurance coverage you may have. If you do not respond, your default cover will be cancelled and you will be uninsured.
This may be beneficial for people who have multiple superannuation funds that they aren’t aware of. Often employers will open superannuation funds for new employees instead of obtaining the details of their current fund. This will alleviate the erosion of old super balances, allowing them to be claimed and rolled over into the fund you would like to retain.
However, there are a number of potential issues raised by this change. Many people with pre-existing conditions or family histories of illness may rely on default insurance coverage as they would otherwise be unable to apply for insurance elsewhere. If their default insurance coverage was cancelled they would be left uninsured and unable to support themselves in the event of illness or injury.
Furthermore, this change even extends to underwritten insurance policies. Underwritten policies can require extensive medical checks and can be difficult to obtain. Some people may be at risk of having their underwritten policies cancelled under this change.
Industry consultants KPMG estimate that up to 50% of existing insurance coverage in superannuation nationwide would be removed if the bill passes through Parliament unamended.
Default insurance coverage is often very cheap as the risk of a claim being made is spread across thousands of individuals as part of a ‘group insurance plan’. KPMG believes that default cover will become more expensive for everyone due to the removal of younger people from these group plans. [1]
If any of the categories mentioned above apply to you or someone you know, it might be time to look into your super to determine the best course of action. It can help to talk to a Financial Adviser about your insurance needs to get a realistic assessment of your situation. We welcome you to book in an obligation free meeting with the advisers at Evolution who can assist you in understanding the changes and the impact these may have on you and your family.
[1] Insurance in superannuation: Impact of proposed Federal Budget changes – KPMG Website