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Superannuation changes

What the changes to super mean for people with chronic illness or disability

This document provided by Maurice Blackburn solicitors

Insurance is a common feature in employment super funds – but it is currently not compulsory (except for up to $50,000.00 death cover in some funds). However, from 2013 most employment super funds, including MySuper and “choice” funds will have to offer death and TPD insurance cover to their members and they may also offer income protection. The amount and types of cover will vary but it should mean that more workers will have access to greater amounts of life insurance. This is good news, particularly for people with chronic illnesses and disabilities whose working lives may be cut short and who otherwise wouldn’t be able to have enough to live on in retirement. There have been big changes in superannuation in the last twelve months. They will affect many working Australians in the coming years.

Set out below are some of the important changes to superannuation coming soon:

1.Compulsory Super Rate

The compulsory employment superannuation rate is to increase from 9% to 12%.

Called the Superannuation Guarantee (SG), it has been at 9% of salary since 2002/03. It will rise gradually from 2013/14 from 9% to 12% by the year 2019/20.

2.MySuper

From 2013, most workers starting a job will be offered a new type of super fund for their compulsory super contributions to be paid into.

Called “MySuper”, the fund will be a more simple super fund which has a set investment strategy, low fees and charges, no commissions and death and total and permanent disability (TPD) insurance cover.

Most workers will be able to choose their fund (eg an existing super fund or their employer’s fund) but a MySuper fund must also be offered and will be the fund your compulsory super contributions are paid into if you don’t pick a different fund

3.Salary Sacrificing

Workers can salary sacrifice some of their pay into a superannuation fund.

The tax advantage of it is that you will only pay 15% tax on the money in the super fund and not your normal full tax rate on wages.

However, there is a limit on the amount of money paid into a super fund that qualifies for this tax treatment – called the concessional cap.

Up to July 2012, the concessional cap for people up to 50 years old is $25,000.00 per annum and for those over 50 it is $50,000.00 per annum.

From July 2012, the concessional cap for over 50 year olds is reduced to $25,000.00 pa. This is not the case if the amount in your super fund is less than $500,000.00.

4.Account Consolidation

The statistics show that the average worker has 2.8 superannuation funds.

Many of these funds are “inactive” – no contributions are being paid into the funds and they may be reduced by fees and charges.

From 2012/13 it is proposed that by using tax file numbers, Australians will be able to consolidate their super into one fund. Also, from 2013/14 it is proposed that when you start a new job and nominate the super fund your compulsory contributions will be paid to, that fund will identify your inactive super funds and consolidate the money into your current fund.

However, many inactive super funds still have continuing insurance for death and TPD – which will be lost if rolled over into your current fund.   This would be a big loss for people with disabilities who may lose insurance worth hundreds of thousands of dollars because you can have more than one death and TPD claim.

The details of this auto consolidation are still being worked out and we will update you in the future.

5.Trustees Duties

Super funds are run by trustees.

Most big employment super funds (eg industry and retail funds) have equal employer and employee representation on their trustee boards.

A recommendation to do away with equal representation was rejected by the Federal government.

However, there are to be changes to increase the expertise of trustees and auditors of super funds with minimum standards to be set by ASIC for training, knowledge and competency.

These will apply across the board, including to self managed super funds (SMSFs).

6.Insurance

Insurance is a common feature in employment super funds – but it is currently not compulsory (except for up to $50,000.00 death cover in some funds).

However, from 2013 most employment super funds, including MySuper and “choice” funds will have to offer death and TPD insurance cover to their members and they may also offer income protection.

The amount and types of cover will vary but it should mean that more workers will have access to greater amounts of life insurance.

This is good news, particularly for people with chronic illnesses and disabilities whose working lives may be cut short and who otherwise wouldn’t be able to have enough to live on in retirement.

7.Get Help

There will be many more changes in super in the future and we will be closely watching them.

If you have any questions about superannuation or insurance, call Maurice Blackburn on 1800 196 050 for free advice.