The AFA has alerted its members to the possibility that some of their clients’ life insurance policies inside superannuation funds may start to be cancelled from as early as 1 July this year.
In releasing an ‘important update’ to its members at the end of last week, the Association’s CEO, Philip Kewin, reminded his members about the timelines associated with the introduction of the ‘Protecting Your Superannuation Package’ (PYSP) reforms, which include the following elements:
- A cap on fees for accounts with a balance under $6,000
- A ban on exit fees
- The automatic consolidation of small balance inactive superannuation accounts
- A requirement for trustees to cancel insurance for inactive accounts, where no contributions or rollovers have been received for 16 months
Noting these measures do not apply to SMSFs or small APRA Funds of less than five members, the update reminds advisers that, while the PYSP legislation was announced in May 2018 as part of last year’s federal budget, it was not passed until 18 February 2019 and the regulations were not issued until 4 April 2019.
…any period of inactivity prior to the commencement will be included
Kewin notes, however that the while the reforms come into effect from 1 July 2019, any period of inactivity prior to the commencement will be included:
“Thus, some insurance is likely to be cancelled from 1 July 2019,” warns Kewin.
In detailing how advisers’ clients may be impacted when the PYSP reforms take effect, Kewin said advisers needed to establish:
- Which clients have insurance in a super fund that is classified as inactive
- How long it has been since the account has been inactive
- Whether the clients wish to retain the insurance
If this is the case, Kewin advocates two options:
- Encourage the clients to make a contribution or a roll-over
- Instruct the client to write to the super fund to notify the intention to retain the insurance
“It is also important to know that there is an exemption from the requirement to cancel the insurance after 16 months of inactivity, where the insurance has been prepaid or is on a fixed term arrangement,” said Kewin, who added that no definition of fixed term has been provided, “…although the AFA is aware that some super fund trustees have made the determination that their insurance arrangements are fixed term and that insurance will therefore not be required to be cancelled.”
The update provides additional relevant details around cancellation of cover and ongoing review requirements that will be imposed on super fund trustees, and recommends all advisers should proactively communicate with potentially impacted clients as soon as possible.
Members were also provided with a link to a draft standard message that Kewin suggests they may wish to use to email their impacted clients.
If a superannuation member dies having had their insurance cancelled, without their agreement/approval, can their estate successfully sue?
Gruntled I reckon there will be heaps of Estates going to sue the government.
I’m in total agreement. Watch this space. I think a change of career is in order, maybe a lawyer…….Our associations should be working on behalf of the advisers and their client’s families. Maybe the associations will be joined in litigation……………
Sorry to be cynical, but this one’s on the Government not the advisers. Despite our intentions to act in our clients best interests our businesses stopped receiving any income to service these clients some years ago so the amount of time that can be afforded to offer this advice is nil. Good luck to all.
Exactly Matt
Its unbelievable that the Government can make these changes and expect that the adviser is to pick up the lose ends when it goes wrong ! It is to me just an extension of this whole LIF issue We make the rules you follow them and don’t give us your opinion because we know better than you ?? Grandfathered commissions are just another part of this ! how do they know we don’t look after our clients in this position ? Its another cop out to give the insurers less expenses. Don’t kid yourselves there will be some sort of fee increase to replace the grandfathered ones that will go to the Insurance companies not the refund of fee to the clients that they are all saying will happen .Mercenary is the word and it has always been that way. I HAVE PEOPLE ON MY BOOKS I WROTE SUPER ON IN 1984 and regularly contact and advise them there is nothing wrong with the policies they have most outperform todays so called upgraded ones with cheap fees { and lack of performance } The small amount I receive to me is what we agreed upon back then and my word to them is my bond otherwise I am sure they would have been long gone. Best interest duty ?? !! I don’t thin half these beurocrats know what it really means.!
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