Super fund members who have not had employer super contributions paid into their accounts for 12 months could be at risk of losing an important piece of insurance.
Many members are unaware they could lose their default total and permanent disablement cover without realising.
The same applies to other types of insurance covers including life and income protection, where accounts are deemed inactive and the funds are transferred to the Australian Tax Office’s lost super cash box.
At the end of December last year, that box contained a massive $13 billion.
According to Mal Smith, the chief executive of real estate industry fund REI Super, the issue of members losing their insurance cover is very real and concerning.
“Superannuation is deferred wages and employers have a legal obligation to pay super into your account,” Mr Smith said.
“However, if they don’t make contributions for 12 months, not only could your super be deemed lost and transferred out of the fund you are in, you could lose the protection of your default total and permanent disablement insurance.”
Mr Smith said workers at particular risk included casuals, who did not receive regular employer contributions.
“It might be that a worker has moved to another job, but there is also a risk that an employer is not meeting their Superannuation Guarantee obligations. If the employer stops making super contributions the member may not know for some time.”
But often the loss of insurance cover is not realised until it’s too late.
Members may put in an insurance claim years after the event and find out they are not covered.
“Unfortunately we see a lot of this and in discussions with other funds it’s evident they experience a similar issue,” he said.
“Members are not appreciative of the value of this benefit until it’s gone. Because it’s a default offering members don’t realise until they go out and ask for cover.”
Mr Smith said it was important for members to stay engaged with their super and be aware of all their benefits.
“You need to take an interest, and if your cover has been turned off you need to find out why.”
The lost super dynamic
Meanwhile, Vision Super general manager, strategy and growth Sean Ellis said the situation could be compounded by recent legislative changes that had doubled the minimum account balance at which funds in inactive super accounts could be transferred to the ATO.
Previously, accounts with $2000 or less that had been deemed inactive for two years could be transferred into general revenue, but that threshold was raised to $4000 on January 1 this year and will rise again to $6000 from January 1, 2017.
According to the ATO, a lost member is a member of a super fund who is inactive, uncontactable, or who has transferred from another super provider as a lost member.
“A member is not a lost member if their address has been confirmed in the past two years, or they have indicated that they want to remain a member,” the ATO states.
Any funds taken by the ATO can be claimed back by a member through the ATO’s lost super portal.
But Mr Ellis said that once funds were transferred to the ATO the insurance benefits held by the member would be lost.
“It’s a very big issue, when default insurances such as life cover, income protection and TPD are lost.”
DISCLAIMER: The New Daily is owned by a group of industry super funds.