SMSF members with life insurance inside Australian Prudential Regulation Authority (APRA)-regulated funds have been warned they need to ensure they have opted in to the cover to prevent it lapsing under changes introduced in February.
The warning came from SuperConcepts SMSF technical and education service general manager Peter Burgess as part of a webinar presented earlier today.
Burgess said the Protecting Your Superannuation legislation, which passed through parliament on 18 February, prevented trustees of APRA-regulated funds from providing opt-out insurance to new members aged under 25, members with balances below $6000 and members with inactive MySuper or choice accounts, unless a member has directed otherwise.
He said these changes did not have a direct impact on SMSFs, but could affect fund members who still held balances in APRA funds for the purpose of accessing life insurance.
“The conditions listed can create a false sense of security for SMSF members who may have looked at the changes and believe they have an insurance benefit in an APRA fund and there was no risk of the balance being transferred to the ATO, which is true but only as long as the life insurance remains active,” he said.
He highlighted that under the amendments if no contributions or rollovers were made into their APRA-regulated fund for a continuous period of 13 months or more, their account will become inactive.
“Under the new opt-out rules for insurance, if a fund has been inactive for 13 or more months, the APRA fund is required to switch off the life insurance cover and it will lapse, unless the member has provided a direction to the APRA-regulated fund for their insurance cover to be maintained,” he said.
He added that if an APRA-regulated fund balance also fell below $6000, that balance may be transferred to the ATO, effectively ending the insurance cover.
“Even though the legislation specifically prohibits a superannuation account, which provides insurance cover to the member, being transferred to the ATO, this protection is lost if the account is inactive and the insurance cover lapses,” he noted.
“This could happen if the member fails to make an election to maintain the insurance cover in the APRA-regulated fund which they are permitted to so even though their account may be inactive.”
He said SMSF practitioners needed to inform fund members of the change and the new legislation would apply to all APRA-regulated fund members who hold a superannuation account that, on 1 July 2019, had been inactive for a period of 13 months or which had a balance of not more than $6000 since 1 April 2019.