11/07/2019 by Pascoe Partners Accountants
If you have a super fund with a low balance, a number of important changes came into effect on the 1st July and they may affect you.
Superannuation insurance changes and exit fee changes, in particular, were targeted to help protect fund balances that are low and at risk of being consumed by fees.
This should be of particular interest to you if you have one or more super funds below $6000.
The main changes are explained below…
It is estimated that over six million Australians have more than one superannuation fund.
It is also suggested that 52 percent of 18-34 year olds do not open letters or emails from their superannuation funds.
Parents, it’s time to start educating your children on the need to take action!
Most individuals in this age group are ambivalent towards superannuation. They don’t view it as their money because they will not be able to access it for such a long time.
But that length of time is exactly why they should act now: compounding will help them make money for years into the future.
So what changes do you and your children need to be aware of?
The first change is to do with superannuation insurance. Policies inside superannuation where there has been no contribution activity in the last 16 months will be cancelled.
This is an attempt to preserve the balance of the fund.
For younger members, insurance premiums are relatively cheap as they are part of a group policy that is available inside superannuation funds.
If you are not able to obtain life insurance in your own right for various reasons, it may also be best to protect what you already have.
As you consider insurance within your super fund, it might be a good time to review whether the level of cover is appropriate for your circumstances.
Exit fees have been banned, making it easier to change funds.
Remember, six million Australians have multiple funds; so this change could help you consolidate various accounts into one and save you from excessive charges.
Regardless of your fund balance, it probably makes good sense to consolidate multiple accounts to maximise returns by keeping management fees to a minimum.
Management fees have been capped at 3 percent of the fund balance for funds with a balance below $6000.
There are many low-option funds available where the fees are actually less than the 3 percent threshold but you should seek advice on the consequences of a change.
You may, for example, lose the insurance cover in the new fund. Seek advice before you jump in.
Super funds with a balance below $6000 and which have seen no activity in the last 16 months could be transferred to the tax office. The ATO will try to match them with the owner of the fund.
Whether the ATO has the resources to track down a portion of the six million duplicate accounts remains to be seen. They will likely rely on Tax File Numbers and a computer algorithm to streamline this activity.
While reviewing your superannuation, it may be a good time to consider where the money is invested.
Funds offer many investment profiles such as growth, balanced, or conservative. It is best to seek advice to determine what your investment profile should be to maximise the return on the fund.
Remember, it’s your money.
If you need assistance with understanding the superannuation insurance changes or are considering any changes to your fund based on the above information, please contact us first.
Speak to David Williams at Pascoe Partners Wealth on (08) 93223400.