Important superannuation changes for those under 25 – ECEC take note
Most superannuation funds offer life insurance for their members, however changes are scheduled for next year which could leave those under 25, or those with superannuation of less than $6000 without protection.
The changes, which come into effect on 1 April 2020, aim to ensure that young Australians’ superannuation balances are not unnecessarily eroded by insurance premiums.
The new reforms mean that superannuation providers can only provide life insurance on an ‘opt-in’ basis to members who are under 25 and begin to hold a new superannuation account from 1 April 2020, and also to members whose superannuation balance has not been $6,000 or more from 1 November 2019.
Essentially, this means superannuation providers will be required to ‘turn off’ insurance cover on 1 April 2020 for members whose account balances have not been $6,000 or more from 1 November 2019. Given the publicised issues with low superannuation levels for those working in the early childhood education and care (ECEC) sector, this is a change of note.
Insurance offered along with superannuation typically falls into one of three camps:
- Death cover (also known as life insurance) – is part of the benefit your beneficiaries receive when you die, either as a lump sum or as an income stream.
- Total and permanent disability (TPD) cover – pays you a benefit if you become seriously disabled and are unlikely to ever work again.
- Income protection (IP) cover – pays you an income stream for a specified period if you can’t work due to temporary disability or illness.
Employer’s default super funds will generally provide death and TPD cover. This basic cover may be available without health checks.
The detailed information about which insurer is used by any given superannuation company is available in the relevant super fund’s product disclosure statement (PDS) which explains the insurer they use and details of the cover available.
As well as being aware of insurance changes, it is important for the sector to note that from 1 July 2019, super funds will cancel insurance on accounts that haven’t received contributions for at least 16 months. Your fund will contact you if your insurance is about to end.
For more information, or to access comprehensive advice in relation to superannuation and insurance, please see here.