Self-managed super fund members who have maintained an account with another fund so they can keep existing life insurance cover, need to review their arrangements ahead of changes to insurance in super next month.
From 1 July, APRA-regulated super funds will be prohibited from charging insurance premiums for inactive accounts, which is any account that has not had a transaction for 16 months.
The SMSF Association’s technical director Peter Hogan says there are no figures on how many SMSF members have an APRA fund for insurance. “But anecdotally we know it is happening,” he says.
SMSF members do this because the group cover available in APRA funds is usually cheaper than the fully underwritten cover they would have to get though their SMSF.
It may also be the case that the SMSF member obtained cover in an APRA fund and is now too old or unwell to get the same cover at the same price elsewhere.
Hogan says those people are likely to be inactive members of their APRA fund. They need to be aware that they will lose their cover unless they opt in.
Another issue for SMSF members in this position is that premiums in APRA funds are going to go up after July 1. Some APRA funds have very high proportions of inactive members and when those people lose their cover the pricing for the active members will have to be adjusted.
No one in the industry is able to say at this stage how much premiums will rise, but it may be as much as 20 per cent.
Each fund will vary, according to the make-up of its membership and the number of inactive members who opt back in. Pricing changes could vary widely.
SMSF members who find that the premiums they are paying for insurance in their APRA goes up a lot may want to shop around for a fund that offers a better deal.
Hogan says: “People may shop around. It will depend on whether they can get the same cover. If they are old or unwell they may have to stay where they are.
“They should certainly be reviewing their position.”