Clients who have relied on the superannuation co-contribution to fund their insurance premiums could be faced with a shortfall from 1 July this year, according to IOOF technical services manager Damian Hearn.
The Government has proposed to cut the co-contribution matching payments to 50 cents in the dollar, meaning that people earning under $31,920 could be $500 worse off, said Hearn.
Clients who hold insurance-only superannuation accounts may be faced with the prospect of having their insurance lapse, he added.
However, clients with accounts that also have an investment component have other options open to them, Hearn said.
"Investment returns can help you pay for those premiums, or you could look at contribution splitting with a higher income earning spouse," he said.
Adjusting the asset allocation of the portfolio to change the risk/return ratio is another option, but that would be a difficult in the current market, Hearn said. Finally, the least desirable option would be to reduce the level of insurance, he said.
While the reduction of the co-contributions was "very likely" to go through parliament, lower income earners will be compensated by the Government’s proposal to refund the 15 per cent contribution tax.
"You can potentially see that the next step may be a full phase out of the co-contributions and more money being allocated back into this refunded contributions tax," Hearn sad.
