Protecting your superannuation package
Posted by: TJL Accountants & Advisors | On: May 15, 2019
In February of this year, new legislation passed the Australian parliament with the purpose of strengthening the super system. The changes are in response to the Financial Services Royal Commission and its findings, and there are a few key changes worth noting as they are relevant for most people investing in super. Much of the focus is on preventing high fees from eating away at low balances.
The changes are due to come into effect from the 1st of July, 2019.
The key points:
- Fees will be capped at 3 per cent for low-account balances containing $6,000 or less.
- Exit fees will also be abolished, ensuring Australians can switch and consolidate funds without penalty. The Government has claimed that measure, combined with the fees cap, will save Australians $570 million in the first year. Those with super funds with legacy high withdrawal fees will now be able to move their funds without charge.
- After 1 July 2019, those low-balance accounts will also be auto-consolidated if left inactive for a period of six months. With one-third of super accounts in the system estimated to be unwanted additional accounts, it’s a significant move forward.
- Super providers will need to cancel insurance cover in any super account considered inactive. An inactive account is one that hasn’t seen any contributions or rollovers for more than 16 months. This could potentially affect a significant amount of people, including anyone who has had time off work for more than 16 months. A safeguard to ensure the under-insurance problem for Australians isn’t exacerbated is that the super fund must contact the member prior to cancelling their cover, and the member can then elect to keep insurance cover going.
- Civil penalties will be put in place for super fund trustees who do not act in their members’ best interests. Previously the regulator has been rather lax in addressing conflicts of interest.
- Super funds are to stop lavishing gifts on employers to retain their business. During the Royal Commission it was revealed that the industry fund Hostplus was taking a number of employer groups (bosses) to the tennis every year, at a cost of $300,000 per annum. This was paid for by the fees collected from employees who are members of the fund.
It is important to note that if you have insurance cover included as part of super and your account has been inactive for a period of time, it’s highly likely you will get a letter from your superannuation provider questioning whether you wish to continue your insurance cover.
If you receive such a letter and are unsure what you should do, please get in touch with the TJL Financial Planning team. Protecting your super package is extremely important. Contact TJL in Forster on (02) 6554 9511 or Taree on (02) 6552 3233 for personal advice based on your unique circumstances.