In conversation with Lawyers Weekly, Shine Lawyers national special counsel of consumer disputes Will Barsby (pictured) explained that the federal government’s Protecting Your Super reforms come into effect on 1 July 2019, which will change the rules around insurance in superannuation.
The reforms are aimed at ensuring that retirement nest eggs that make up our superannuation balances are not eroded by unnecessary insurance premiums, he said, and one of the key changes coming is the cancellation of all insurance products on superannuation accounts where, as at 1 July, there has been no contributions into the super fund for 16 months, meaning that account would be “deemed inactive — regardless of the balance”.
This rule will be ongoing as an insurance “opt-in” basis only, he noted, and so all accounts moving forward that are deemed inactive will have the insurance cancelled.
For sole practitioners and boutique principals, it is often the case that profits generated during the first couple of years are reinvested back into the business to help it grow, Mr Barsby mused.
“What we often see with owners of small business is that they overlook making superannuation contributions to their own account. This often happens when a practitioner leaves a firm as an employee and sets up their own firm. They will generally keep their super fund and insurance attached to it — but overlook making contributions into it,” he said.
“The new rules will mean that practitioners may be covered as at 30 June for serious injury or illness [and] may wake up on 1 July to having no cover at all and ineligible to reinstate it.”
This is especially dangerous for lawyers in this space, he continued, as injury, illness or even short-term capacity “can strike at any time”.
“If a sole practitioner who has started their own firm and hasn’t taken out any insurance cover outside of their superannuation fund, [they] may find themselves not insured come 1 July,” he said.
“In short, lawyers may get caught out if they don’t opt in or get independent financial advice about making sure they have the right life insurance generally.”
Lawyers across the board, but particularly sole practitioners and boutiques, will benefit from being aware of these changes to super, Mr Barsby posited, “as it will ensure that their own financial security is protected”.
“Lawyers generally should stay in tune with super changes; after all, our superannuation is usually our second biggest nest egg aside from our home. Also, lawyers should ensure they get appropriate financial advice about the right insurance product for their situation, whether it be in super or a standalone product,” he said.
“As a profession, we all work exceptionally hard to build our careers, and tragedy can strike any of us and impact us and our families financially. We should all make sure we have the right level of insurance to protect us if we are unable to work due to sickness or injury.”
From a practical standpoint, sorting out your individual circumstances for the 1 July super changes is as simple as making a phone call to your superannuation fund, Mr Barsby suggested.
“It is recommended that practitioners contact their super fund, get advice to make sure they have cover that is suitable to them and ask their fund what they have to do to keep their insurance active. Generally, it is recommended that all practitioners get into the habit of undertaking a financial health check, annually,” he said.
“Personally, I review the health of my financial matters at tax time, make sure my superannuation is working and review my insurance policies etc. generally to make sure they cover my personal circumstances.”