Govt warned on super insurance fall-out
Around half a million people risk losing significant superannuation-related insurance benefits if the Federal Government decides to proceed with lifting the lost-member superannuation account threshold to $6000.
That is the analysis of the Financial Services Council (FSC) which has warned the Federal Government not to proceed with the former Labor Government's legislation lifting the lost superannuation account threshold beyond its current level of $2000 to $6000.
In a submission to the Treasury, the FSC has said it is concerned that the increase in the ‘lost/inactive' account threshold to $6000 "will result in the loss of valuable insurance benefits currently held by members".
"According to data provided by six large FSC superannuation members, almost 214,000 accounts would be transferred to the ATO above the $2000 threshold, with total insurance benefits of almost $12 billion by sum insured," the submission said.
"Projected across the industry, it could be expected that the number of ‘lost/inactive' accounts where there is an insurance benefit attached is around 500,000 fund members if the threshold were to be lifted to $6000," it said.
Further, the FSC submission warned that it was possible that many of these ‘lost/inactive'' accounts "have been maintained for the insurance benefit".
"Members may leave the policy in place to maintain the cover afforded to them — generally where the investment return is sufficient to cover the premium on an annual basis there would be no activity (active contributions) to the account," it said. "For example, personal superannuation accounts are established for insurance purposes. The annual investment return covers the annual insurance premium and no other contributions are required to keep the insurance coverage in place. As there are no annual contributions, the super account is adjudged "inactive", the account would be paid into consolidated revenue and the insurance coverage is lost to the account holder."
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