The 2018 budget proposal to transfer all inactive superannuation accounts where balances are below $6000 to the ATO will have unintended consequences for SMSFs that also have industry and retail super accounts, according to a lawyer.
Townsends Business and Corporate Lawyers estate planning and superannuation special counsel Brian Hor said anecdotally he was aware of a reasonable number of members who have established their own SMSF and rolled most of their balance from their retail or industry fund into their SMSF and have asked their employer to direct contributions into the SMSF.
However, they may have retained that retail super fund with a small balance to retain their life insurance policy as they may find it favourable for their circumstances, Hor said.
“Often with a big company they can negotiate a very good rate of premiums for their employees for a policy that they put all their employees into. Or it could be the case that it was the only way that particular person could actually get life insurance because they might have a particular disease or affliction which makes it very hard for them or maybe even impossible to get the insurance on their own,” he told selfmanagedsuper.
“Maybe they can’t even get that sort of insurance anymore because maybe they’ve had some health changes, they’re older now and not as fit as they were before and now there are some health changes that have happened which would make it very hard for them or perhaps impossible to get a new policy again.
“So there are a lot of people in that situation and I just thought, well, has the government considered that? I suspect not.”
He also said this could devastate a member’s estate plans, especially if the policy was earmarked for a particular beneficiary or for a particular purpose, such as to provide benefits for a current spouse and free up the member’s personal estate to benefit their children of a previous relationship.
Under the budget proposal presented by Treasurer Scott Morrison on Tuesday, the ATO will expand its data-matching processes to proactively reunite these inactive super accounts with the member’s active account where possible.
Hor warned if SMSF members decide to retain a retail fund to continue with the life insurance policy, they should monitor it to ensure it remains over the $6000 threshold.
“Their beneficiaries don’t want a nasty shock later on where that life insurance policy that was meant to pay off the home mortgage or provide a fund for a particular beneficiary suddenly isn’t there because no one had realised the account had been closed by the tax office.”
