If you have ever changed jobs, changed employers or changed your surname, you may well be one of those people. More significantly, many Australians have lost track of at least some of their retirement nest egg, with the Australian Taxation Office (ATO) currently holding around $14 to $18 billion of “lost” superannuation money. Some of that money will never be reunited with the correct owner.
Government Can Now Hold More of Your ‘Lost Super’
Under recent legislative changes it is now much easier to be “lost”.
Thanks to the above-linked legislative changes, the amount of lost superannuation being held by the ATO is set to rise significantly over the next few years, with the value threshold at which the government can transfer inactive accounts from the superannuation fund administrator to the ATO having recently risen from $200 to $2,000 and slated to increase further to $6,000 over the next few years.
It may be good for the government coffers, however one significant issue that the rise in threshold and reduction in period of inactivity raises is – what happens to any insurance cover attached to the account (life insurance, total & permanent disability insurance, and income protection insurance) if that account is closed and transferred to the ATO?
What happens to your insurance cover?
In a submission to Treasury, the Financial Services Council (FSC) has warned that hundreds of thousands of Australians risk losing significant superannuation-related insurance benefits if the government proceeds with its aim to lift the lost-member superannuation account threshold from $2,000 to $6,000.
“Members may leave the policy in place to maintain the cover afforded to them — generally where the investment return is sufficient to cover the premium on an annual basis there would be no activity (active contributions) to the account,” the FSC said.
“For example, personal superannuation accounts are established for insurance purposes. The annual investment return covers the annual insurance premium and no other contributions are required to keep the insurance coverage in place.”
Without any member or employer contributions, however, the superannuation account is judged to be “inactive” and is at risk of being transferred to the ATO – resulting in the loss of insurance cover and potentially a nasty surprise for beneficiaries down the track!
In a submission to Treasury the FSC estimates, on data provided by six large FSC superannuation members, that raising the current $2,000 threshold could result in more than 200,000 additional accounts being transferred to the Tax Office, with an estimated total insurance benefit of almost $12 billion by sum insured.
It is just one of many good reasons to stay in touch with your superannuation savings. If you think you may have one or more super accounts “out there”, the ATO can advise you how to find lost super. And if you need assistance in researching your options, try our compare super funds selector.