Understanding the ins and outs of the new Protecting Your Super package.

The ins and outs of the Protecting Your Super package

This year, the federal government introduced laws called the Protecting Your Super package. It’s a big deal because it addresses important changes to superannuation that are here to stay. In fact, there’s even been an industry-wide campaign about how it’s time to check your super.

The package aims to protect Australians from super balances becoming eroded by fees and/or premiums in accounts that aren’t being used. And, as a result, encourages us to start being more actively involved with our super.

Understand how a financial planner can support you with your need for financial security. Get in touch.

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Why get involved in your super

It can be easy to set and forget or even lose track of our super. In fact, as at 30 June 2018, approximately 39% of Australians had more than one super account.ⁱ

And it’s not uncommon to forget what benefits (like insurance) are included with the account after joining a super fund, as well as how much you’re paying in fees and/or premiums. These fees or insurance premiums can then start to diminish any money in an account that’s not being actively used.

So, the PYS laws were designed to:

make sure people don’t continue paying for insurance cover they don’t know about, and
protect low balance super accounts from being eroded by fees.

What’s in the PYS laws?

The PYS laws cover three main areas:

Insurance inside inactive super accounts
Inactive super accounts with a low balance
Fee limits on super funds.

1. Insurance inside inactive super accounts

Many superannuation plans include insurance as part of their offer. It’s often general cover that’s provided to a set group of people (like employees who sign up to their employer’s super plan).

Under the PYS laws, super providers are required to cancel the insurance in any super account that’s considered inactive (meaning the account hasn’t received any contributions or rollovers for 16 continuous months).

Before they cancel, your super provider must tell you that you’re at risk of having your insurance cancelled and give you the opportunity to choose to keep your insurance. You can stop your insurance being cancelled by letting your super provider know in writing. If you have more than one super account that’s at risk of being cancelled, you’ll need to let them know in writing for each of the accounts.

Making a super contribution or rollover into an account that’s considered inactive will also stop the insurance cancellation from going ahead – unless the account becomes inactive again for 16 months.ⁱⁱ Making regular contributions can prevent this. It’s always important to consider your circumstances before making a contribution or rollover.

2. Inactive super accounts with a low balance

The PYS laws require super providers to transfer any accounts with a balance of less than $6,000, and no contributions or rollovers for 16 continuous months, to the ATO. Some exceptions apply to this, including if you have insurance inside your super account.

If your super is transferred to the ATO, you’ll be able to reclaim it from them. You can do this by logging into your MyGov account and using ATO Online Services.

The ATO may also transfer your super money into another super account you hold. This could happen if your other account has received a contribution or rollover within the current or previous financial year, and the balance after the transfer will be $6,000 or more.

3. Fee limits on super accounts

Another way PYS laws protect super accounts from erosion is by limiting fees charged by super providers. This includes:

Capping fees for accounts with low balances – administration and investment fees will generally be capped at 3% pa for accounts with $6,000 or less at year-end.
Banning exit fees – super funds are no longer allowed to charge exit fees, so you can now switch your super account any time without paying a penalty, although other fees may apply.ⁱⁱ

Before requesting a rollover, you should check with your other fund(s) to determine whether there are any exit or withdrawal fees for moving your benefit, or other loss of benefits such as insurance, noting that you may not be able to obtain the same type or level of benefits after the rollover.

Contributions to superannuation are generally preserved and you cannot usually access your preserved benefits until you reach age 65 or have permanently retired after reaching your preservation age (between 55 and 60 years depending on when you were born). Government prescribed caps also apply on the amount of money you can add to superannuation each year on a concessionally taxed basis. There will be tax consequences if you make contributions exceeding these caps.

Speak with a Financial Adviser today about how you can maximise the benefits you are getting from your super, and plan for a richer and more rewarding retirement.

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What you need to know

This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.

i Australians Tax Office (ATO) – Multiple Super Accounts data. Figures are based on member data reported by funds to the ATO for the year ending 30 June 2017.

ii Things to consider – contributions or rollovers