Those who run self-managed superannuation funds frequently maintain relatively low balances in Australian Prudential Regulation Authority (APRA)-regulated funds for the sole purpose of accessing insurance, according to the SMSF Association.
In a submission lodged with the Senate Economics Legislation Committee review of the Government’s legislation which would make group insurance “opt-in” for under 25s and deem accounts under $6,000 inactive, the SMSF Association said it was “common practice for many individuals with an SMSF to also have an APRA-regulated fund account which provides them with insurance”.
It said this was done for two reasons – to access group insurance policies provided through APRA-regulated superannuation funds, which were often cheaper than individual policies, and to retain legacy insurance policies which might offer better benefits or lower premiums than new policies, especially for older members.
“These individuals consider the SMSF to be their primary superannuation account and therefore direct their contributions and roll-overs to their SMSF,” it said. “Where required they may orchestrate a rollover of funds from their SMSF to their APRA fund to pay for insurance premiums and administration fees to retain their insurance policy.”
The SMSF Association said that under the proposal the APRA-regulated fund would be considered inactive if no contribution or rollover was received, yet it still might be considered active for the purposes of the individual.
“The SMSFA would be concerned if insurance was closed for these accounts because members have not checked their mail or correspondence, especially those for who rely on insurance held in an APRA fund separate to their SMSF,” it said.
“Typically, those affected in this situation would be more engaged with their superannuation and may need to contribute at least once a year to facilitate insurance payments which would mitigate this risk, although this will not completely prevent unintended consequences.”
