The Government’s Budget proposal to strengthen the ATO-led consolidation regime by requiring the transfer of all inactive superannuation accounts where the balances are below $6,000 to the ATO. The aim being to reunite these inactive superannuation accounts with the member’s active account may have drastic unintended consequences where a member has deliberately maintained a small super account that was established when they were with a former employer in order to retain a favourable life insurance policy.
A fund member may have a small super account which the member wishes to keep, even though they do not actively make any further contributions to the account, because it has a life insurance policy attached to it that may have been obtained on favourable terms.
For instance, being a group insurance policy the member may have been able to obtain the insurance notwithstanding having a medical condition that otherwise may have made it more difficult, more expensive or even impossible for the member to obtain otherwise).
Depending on the size and nature of the insurance policy, a balance of up to $6,000 plus earnings might still be able to fund the insurance premiums for several years or more without the need for additional contributions to be made.
The Government’s proposal to transfer the balance of such a superannuation account may mean the loss of an insurance policy that the member may not be able to replace elsewhere, due to a change in their health or other circumstances. This could devastate the member’s estate plans, especially if that policy was “earmarked” for a particular beneficiary or for a particular purpose (for instance, to provide benefits for a current spouse and thereby free up the member’s personal estate to benefit their children of a previous relationship).
The Government needs to add safeguards to their proposal so as to ensure that its implementation does not inadvertently cause disruption to the estate plans of the affected fund members, for instance by allowing a member to “opt out” of the proposal applying to their super account.
Brian Hor
Special Counsel – Estate Planning & Superannuation
Townsends Business & Corporate Lawyers
t: 02 8296 6204
m: 0401 122 338
Twitter: @TownsendsLaw
brian@townsendslaw.com.au
townsendslaw.com.au