Trustees to Carry Opt-in Burden (with little time to prepare)

The passage of the Treasury Laws Amendment (Protecting Your Superannuation Package) Act by both Houses last night, with significant amendments, has revived obligations that will require implementation in about 2 months. This blog is about one of the obligations.

While we are awaiting Royal Assent, funds should commence preparations to:

  • Identify members holding inactive accounts (with 6 or more months of inactivity) that have insurance cover as at 1 April 2019 (Identification Requirement). Last minute amendments to the inactivity test that applies under Unclaimed Money legislation for the transfer of low balance inactive accounts to the ATO aren’t relevant here. The Identification Requirement uses a narrower test of inactivity, based on whether amounts have been received into the account.  According to the explanatory memorandum currently available, the receipt of monies into an account includes contributions and roll-ins but not allocation of investment earnings.  Any other positive act by a member (such as an investment choice or a binding beneficiary nomination) will not alter the characterisation of an account as inactive for the purposes of the Identification Requirement.  The size of the account is also irrelevant.
  • Send out a notice warning these members that their insurance cover will cease if there are no amounts received by their account for a continuous period of 16 months (Notification Requirement), unless they elect otherwise. Any period of inactivity before the Act commences must be taken into account when calculating whether there has been a 16 month period of inactivity.

The notification must given on or before 1 May 2019 unless a person has previously  elected that they want insured benefits. If, on or after 1 July 2019, a notified member has been inactive for 16 or more months (and not election has been made), any cover must cease with effect from the end of the period covered by the last insurance premium.

While past elections are recognised (including elections made after 8 May 2018), the form of the election is important.  The election must be in writing and indicate that the member wishes to maintain the cover that may otherwise be switched off, whether or not the account is or becomes inactive.  It may not suffice, for example, that a member has previously applied for extra cover on top of their default cover.  Also, it is not clear that an election by a member before the member’s account was transferred to another fund under a successor fund arrangement will suffice.  The explanatory memorandum states ‘…it is important to ensure that the member makes a conscious decision for cover to be maintained in an inactive account’.

Special provisions apply to employer paid premiums.

It is expected that regulations supporting the above requirements will be made including regulations that elaborate the notifications that must be given to members, including members who make an election to maintain cover.

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