Making super investment decisions does not represent “activity”

A member’s decision to change the investment strategy for a superannuation fund will not be enough to demonstrate that it is “active” and exempt it from key provisions of the Government’s Protecting Your Super Regime (PYSP), according to the Australian Prudential Regulation Authority (APRA).

In correspondence to superannuation funds outlining its approach to the new legislative regime, APRA has made clear that accounts will need to have received contributions for a continuous period of 16 months to have been deemed active.

“An inactive account is defined for the purposes of the insurance opt-in change as a MySuper or choice product for which no contributions and/or rollovers have been received for a continuous period of 16 months,” it said. “No other actions may be taken to indicate activity.”

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However, superannuation funds guilty of breaching elements of existing superannuation legislation will be able to cite changes to the regime which have not yet passed the Parliament, according to APRA.

In what represents a highly unusual approach, APRA has told superannuation funds it will take account of legislation that has not even passed the Parliament, because the Government believes it will pass.

That legislation is the Superannuation Industry (Supervision) Act which is part of the Government’s so-called “Protecting Your Super Package” and will impact account aggregation and insurance inside superannuation.

APRA’s letter to superannuation funds states that they should follow standard breach procedures and report breaches to APRA within the required timeframe but adds: “Where the breach may relate to future law changes, a trustee may rely on identifying this matter in its breach report, subject to further advice from APRA regarding whether any additional action is required”.

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I wonder how many people will inadvertantly see their insurance cancelled and not be able to regain cover or only discover it following a potential claim incident. My wife ignored the emails (unbeknownst to me) and lost her cover and had to reapply all over again. Luckily she has not contracted a condition rendering her ineligible.

This legislation is going to be a real problem for a lot of Australians who will unknowingly lose insurance benefits. It will be good for a lot of disengaged people with small balances but disastrous for others. It's a shame the implementation was so rushed and the impact is so broad. Aussies are already under-insured...

I have a single, retired client with $985,000 in accumulation phase.
The account has accrued an additional $85,000 in value since the beginning of this year and increased in value by approx $200,000 over the last 3 years since she retired with no further contributions.
This client retired from work 2 years ago based on seriously poor health.
This client does not wish to convert the accumulation account to pension phase because the minute this happens, the Disability Support Pension will cease based on income assessment.
Until she reaches Age Pension age in another 3 years , the monies held within accumulation phase do not count as an asset.
We meet at least 3 times per annum to review and have at least 4 phone contact points throughout the year to discuss various matters. I also attend Centrelink meetings if required.
Irrespective of whether this client has insurance cover attached to this account or not is APRA now saying this client is disengaged and her account is technically " inactive" simply because the account has not received a contribution for a period of 16 months or longer ???
This client has been an active, engaged client since 1997.
This client has no need to alter current investment strategy or no need to make further contributions.
The client is no longer working and does not wish to make contributions.
Is APRA claiming this client needs to make a contribution of say $250 to a managed and " engaged " account in order to justify that this account is not deemed to be " inactive ".????
If so, this is just plainly and obviously ridiculous and the overarching control mechanisms and unintended consequences of "thought bubble" legislation is simply becoming an embarrassment for intelligent,advised and engaged clients and their advisers.

Well said!

Agent 86 - she will need to 'opt-in' but only once. A pain I agree but they want engagement. The headline issue of not being engaged if you have made an investment selection without a contribution seems wrong. This is probably because they cant monitor it but they should fix the system rather than inconvenience the clients.

They don't need to monitor it....we do.
This client is 100% engaged because I have known the client for 22 years.
APRA doesn't know the client or anything about the client at all.
What about if you haven't made an investment alteration but have made a withdrawal instead of a that still deemed to be inactive or disengaged ??
Why is putting money into a superannuation account solely defined as being engaged or active.
Changing Beneficiary Nomination, altering a certain fee structure, increasing insurance cover, withdrawing an amount from Non Preserved components are all "engaged" activity, but don't seem to cut it.
This is just dumbed down and pathetic stuff.

If your client doesn't have any insurance within the account then it's irrelevant whether the account is deemed to be inactive. She doesn't have any insurance to lose and the balance is clearly not under $6k so it's not going to be rolled over to the ATO. Wouldn't worry about it.

But the rushed manner of the legislation of most certainly a huge issue. We only had about 8 clients who needed to opt in to maintain their insurance, not one of them had read the information and understood what was required. There will definitely be some sad stories of family's being left in a horrible position as a result of the implementation of this legislation.

Hi Brett H - that is not how this new regime works - any 'inactive' account is caught, no matter the size

Hey PaulF - the account will be deemed inactive if no contributions are made for 16 months. The repercussions will then be the cancellation of any insurance in the account, and, if the balance is below $6k, it will be transferred to the ATO.

So in a case where there's no insurance and a balance over $6k there are no repercussions to the client. So what's to worry about?

Totally agree Brett H.
When a super member dies or becomes disabled and their estate or they apply to their super fund for the claim documentation and the member does not realise the insurance is no longer will this play out ?
Will ASIC then take the opportunity to again wield the massive overarching stick and belt the living daylights out of the super fund because they didn't do enough to notify the member or were not proactive enough in their follow up processes ??
I can only see yet another round of fund bashing to come out of the unintended consequences of this ridiculous legislation that was given a quarter of the amount of time that it should have had to adequately educate, inform and facilitate the implementation.
By the Govt giving this 3 months and having it concluding at the end pf a financial year with all the additional admin requirements and processing this brings with it is so inadequately shortsighted it is negligent and incompetent.
The politicians who thought this might be a good idea wont be getting their cheque books out to assist a widow and the 3 children who are left with nothing because the insurance cover was cancelled.
There's a saying about Life Insurance:
" No-one ever dies at the right time ".
It's even worse when you don't die at the right time and the insurance is missing.
An absolutely diabolical stuff up that will have real and lasting negative impacts.

You are all wrong. All your client has to do is opt in for the insurance aspect. Once. Permanently. She should already have done this if she's as "engaged" as you say she is, and if she was tagged by her super fund as "inactive" under the legislative test. If she wasn't so tagged, she doesn't need to do anything, but a phone call to her fund might set her mind at rest. She does not need to make any contributions, and never did.

Other aspects of the legislation dealing with inactivity have to do with "low balance" accounts, under $6,000, so your client will not be in that category either. If you're an actual financial adviser talking to clients, how is it you do not understand the legislation? I grant you it was rushed, incredibly rushed, but it's not that difficult to understand and its aim is to stop low balance and unengaged account holders have the already low balances of accounts they are presumably unaware of being eaten up by fees & insurance premiums by identifying, then forcibly consolidating said accounts. Clearly that's not your client. Inactivity doesn't matter once the balance is over $6000.

Hey Geoff, Agent 86's client is retired and on a disability support pension, you'd have to assume there's no insurance in the account. You've got it a little bit backward, having insurance in the account has nothing to do with whether or not the account will be deemed inactive, the trigger for that is whether contributions have been made in the previous 16 months. So in this case the client's account will be deemed to be inactive and will continue to be indefinitely as there is no insurance to opt in to, but it doesn't matter, there are no repercussions to the client.

Perhaps read the original post more clearly before you get all high and mighty.

I agree with Agent 86. Typical instance of bungling in high places because something was not thought through properly. Government is becoming just a joke in financial circles. So many "unintended consequences" of giving in to the loudest voices. The problem as I see it is that the Canberra bureaucrats do not have to rely on real world super for their retirement incomes. They have an index linked pension paid for by the rest of us taxpayers. Therefore they have no idea how to imagine what the rest of us taxpayers have to deal with as fallout from their non-thinking approach.

"giving in to the loudest voices". Sue, you have just summed up the government's entire financial services policy.

There is something very worrying about any Government and it's Authorities making decisions about it's population's monies.

6k threshold for ilb sits at investment option level not at overall account level. so i the above scenario if ur client had 5k invested in cash with remainder invested in mysuper that 5k is likely to be swept across to ato. dont ask by why, when u get tuck shop lady to draft a complex financial services legislation you are very likely to get your mandarins and MANDARIN mixed up

No. It doesn't.

Read this again.

"Depending on how your account is structured with your fund, they may need to consider some of the above criteria at a product level within your account. This may mean that only part of your account is paid to the ATO."

legislation consider mysuper as 1 product and choice products (regardless of number of choice options) as 1 product. so 6K threshold is applied at product level within a given account. So if your client has got 5K in cash to pay for sundry expenses and rest invested in mysuper. that 5K could be goner. But, then little bird tells me they have just realised their mistake and are currently a putting and amendment to already amended treasury amendment bill(PYS).ah well at least it keeps us lots employed deciphering the constant change.

"APRA has made clear that accounts will need to have received contributions for a continuous period of 16 months to have been deemed active." - that's not what they said at all - they said an account must have received a contribution in the previous period of 16 continuous months in order to be deemed active. The two are not at all the same.

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