Early access super - members urged to check insurance implications

20 April 2020

Superannuation fund trustees are worried about the insurance status of fund members who access the Government’s $10,000 hardship early release program and run their balances down to zero or close to zero.

They said this was because the Government’s changes to insurance inside superannuation would mean that, unless members had specifically opted into insurance inside superannuation, they would need to be conscious of the possible loss of insurance when balances were run down significantly below $6,000.

The superannuation fund trustee concerns come despite reassurances issued by the Assistant Minister for Superannuation, Financial Services and Financial Technology, Senator Jane Hume, that there would be no automatic cut-off of people who left their accounts with low balances.

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But even Hume acknowledged that people would have to have left enough in their accounts to cover their insurance premiums.

Hume said that if an account was active and stood at less than $6,000 at any time after 1 November, 2019, the member’s insurance would not be switched off automatically under the law.

But she added on social media: “Of course, you need to leave enough to cover premiums and some funds may have their own rules- talk to your fund for details”.

Commenting on the situation, Deloitte superannuation partner, Russell Mason, said that it was to be hoped that members who sought early access to their superannuation were made fully aware of the implications.

“It would be very concerning if they failed to appreciate the unintended consequences and the possibility it might take two or three years to rebuild their balance to a level where they get insurance cover back,” he said.

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Amazing how loss of insurance benefits is not mentioned by the union funds in their misleading and deceptive advertising campaigns encouraging consumers to switch into their funds. Yet when consumers try to withdraw a small amount of money from union funds to see them through hardship, loss of insurance benefits suddenly becomes important.

If the Fed Govt is going to price cap advice fees at $300, few advisers will bother with this issue, unless the advisers are paid a servicing commission to provide advice in relation to those insurance premiums. FACT.

I think the truth here is that Industry Funds are frightened that when they call the members and ask them to opt-in to the insurances, many of them will tell the funds to go-jump. So the lesson here is a) super funds should never take money from a member on a product they didn't agree to in the first place; and b) if you are going to do it, make sure the premiums are fair. I'm only speculating here, but many of us have wondered if these funds have been gouging younger members with expensive products and using the profit made from them to cross-subsidise the fees of older, wealthier members. If that is what they have been doing, they are about to be exposed and deservedly so.

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