DFK Gooding Partners

July 1, 2019

A common practice in the industry is for individuals with an SMSF (primary superannuation fund) to also maintain an account with an industry or retail (APRA-regulated) superannuation fund. This secondary account holds an insurance policy on their behalf and the decision to maintain both accounts is made for two primary reasons:‌
1. Cost – individuals may access insurance policies provided through larger superannuation funds for a lower cost
2. Legacy insurance policies – maintain existing policies which offer better benefits or lower premiums which cannot be matched by a newer policy

Pre 1 July 2019
Previously, in order to maintain the insurance policy, you only had to ensure there was a sufficient balance in the secondary superannuation account to cover the cost of the insurance policy and other administrative costs. This was done by rolling over benefits from the SMSF or redirecting contributions to the industry/retail fund as and when required. However, legislation passed by the government in February this year has added a new layer to the existing strategy.

What has changed – 1 July 2019
Going forward, to maintain the insurance policy in the APRA-regulated superannuation fund, you must:
1. Maintain a sufficient balance in the account
2. Ensure it is an active superannuation account
An account will be deemed inactive if no contributions or rollovers are received for a continuous period of 16 months regardless of the balance in the account. Where a superannuation account is considered inactive, the insurance policy will be terminated. This is critical, as individuals can no longer utilise a strategy where a large rollover or contribution is made to cover the costs and ‘forgotten’ until the next top up is required.

What you need to do
APRA-regulated funds were required to identify and contact members who have been continuously inactive for six months or more by 1 May to inform them that their insurance will soon be terminated unless they elect to retain it.
If you have inadvertently missed this correspondence, you should take one of the following steps as soon as possible:
1. Contact your APRA-regulated fund and confirm that you wish to ‘opt-in’ for your current insurance policy to be retained.
2. Make a contribution or rollover to your ‘inactive’ account in order to reset the active period and confirm you wish to ‘opt-in’ for your current policy to be retained.

Should a policy be terminated unknowingly, it could have significant implications on you and your beneficiaries. For older members, it may be difficult and costly to access a new insurance policy. Therefore, undertaking the above is especially important for anyone who is reliant on insurance policies maintained via a secondary superannuation account.