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Uncertainty over SMSF risk cover

The proposed reduction in the concessional superannuation contributions caps could have flow-on consequences for SMSF trustees in regard to risk cover if that type of insurance is currently held within the fund, a retirement savings legal expert has warned.

“That $25,000 cap going forward has got to have 15 per cent tax taken off it, so it is in fact an amount of $21,250 investable monies going forward. If you do have life insurance premiums coming out of the fund, that’s also another reduction in the amount of investable funds which are available,” Townsends Business and Corporate Lawyers special counsel Michael Hallinan said.

Hallinan pointed out the issue was of most concern for people in their 50s and 60s, whose risk cover premiums would be quite high.

“That’s going to throw up issues as to whether insurance cover for these people should be scaled back to allow more money to be invested or even terminated,” he noted.

According to Hallinan, that was not the only worry for people in that age bracket with risk cover inside their SMSF as amending that practice might prove to be unsatisfactory as well.

“The downside of course is that once you’re in the advanced stages of your life, having to be underwritten again [for risk cover] can be quite a tremendous hurdle to get over,” he said.

“So they could be in a difficult position where they can’t get new insurance outside super because they’re of that age group where they do need medical underwriting, yet the premiums are in fact significantly reducing the amount of investable funds for their retirement.”

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