Members accessing their super early under the federal government’s COVID-19 relief measures need to consider the impact this will have on their life insurance, a technical expert has said.
Deloitte head of superannuation Russell Mason pointed out many Australians who intend to withdraw up to $10,000 this financial year under the government’s temporary relief measure for those affected by the coronavirus pandemic may not have thought through how this will affect the life insurance provided by their super fund.
“The unintended consequences of this ‘well-intentioned’ move will be the impact on [members’] insurances, which most people would not have considered,” Mason said.
“For many people, particularly new entrants to the workforce, casuals and part-timers, [withdrawing up to $10,000 from their account] could mean reducing their account balance to $0. And if they have no account balance, their death and disability insurance will cease, leaving them with no cover. This is significant.”
In addition, he noted the government’s Putting Members’ Interests First legislation, which came into effect on 1 April, meant an individual who lost life insurance cover because they had reduced their account balance to $0 would not have their insurance automatically reinstated, even after returning to work or normal hours, until their account balance reached $6000.
“This means, for some people who are casual or part-time, they could remain uncovered for two to three years,” he said.
“This clearly has been an unintended consequence of the government’s attempt to help those in financial distress. The problem is it may actually cause an even worse financial outcome.
“We suspect that most people who withdraw their super will not have considered the impact on their insurance or even be aware of the implications.”
In an update on its website, the ATO confirmed there had been a total of 881,600 registrations of interest in the early access to super relief measure as at the end of 16 April.
Earlier this month, Elite Super managing director Katrina Fletcher said members withdrawing super as a result of the early release measure should be allowed to make a “COVID-19 replacement super contribution” on top of current limits after the economic situation had improved.