New parents who take time off work to look after their children may inadvertently lose valuable insurance coverage under new changes to the super system, intended to stop the erosion of savings.
Under the old legislation, a super account would be declared ‘inactive’ if two years passed without receiving a contribution. But under the changes passed by Parliament on Monday that timeframe will be reduced to 16 months from July 1.
Speaking to The New Daily, Women in Super chief executive Sandra Buckley said this presented a challenge for women taking maternity leave (which ABS figures show accounts for 95 per cent of parental leave in Australia) by increasing the chances their super could be deemed inactive and transferred to the Australian Taxation Office.
“If someone goes on leave, they can accidentally get caught in that cycle,” Ms Buckley said.
Glen McCrea, deputy CEO and chief policy officer with the Association of Superannuation Funds of Australia, similarly said that anyone taking time out of the workforce – be it for parental leave, returning to study or even an extended overseas holiday – should check their super arrangements before the legislation comes into effect later this year.
“It’s a really good idea, if you have insurance in an account that you really like, to double check that you’ve been contributing to it or let your fund know you really want to keep that insurance. That’s something for consumers to really bear in mind,” Mr McCrea said.
“I would suggest those people get in touch with their fund as soon as possible and make sure they check their insurance.”
Fixing fee erosion
The other changes to the system include a 3 per cent fee cap on accounts with less than $6000, a ban on exit fees, and the ATO consolidation of inactive accounts transferred to its care, all of which have been warmly received by the industry.
Mr McCrea said the changes included “some real positives”, while Industry Super Australia head of research and campaigns Nick Coates described the changes as “a step in the right direction”.
“We don’t want members paying unnecessary fees, so the consolidation measures of small-balance accounts is welcome in that it is starting to engage that issue,” Mr Coates said.
However, both Mr Coates and Mr McCrea said anyone who has, or suspects they have, multiple accounts should try to consolidate those themselves before the changes to make sure they end up in the best fund for their needs.
“Now’s the time to consolidate your accounts yourself. Don’t let them get shipped off to the ATO,” Mr Coates said.
“Begin that process yourself now, so you can get them into a low-fee, high-return fund.”