Government changes to Self-managed Super Funds include the requirement for fund trustees to consider death and permanent disability insurance for members as part of the fund governance. Sounds straight-forward? Not always!
Since 2001, Mike and Tony have owned and operated MyPrint, a small printing business, with five long-time employees. The group set up a Self-managed Super Fund (SMSF), the MyPrint Super Fund, with Mike and three staff members as trustees.
With the assistance of a financial adviser they assembled an investment portfolio meeting their combined goals. Each member completed a binding nomination of beneficiary, ensuring that if any of them died, their super would be disbursed as they wished.
During 2009-2010, the federal government engaged Jeremy Cooper to examine the Australian superannuation system. The results, known as the Cooper Review, included recommendations that SMSF trustees consider death and permanent disability insurance as part of a fund’s overall investment policy.
The trustees of the MyPrint Super Fund meet annually with their financial planner to assess their investment plan. When they met in 2010, their adviser suggested they think about including insurance as part of the fund’s strategy.
The four trustees considered their planner’s suggestion but opted to maintain their fund’s current, moderately aggressive equity approach, as all members were healthy middle-aged people. To verify their decision, each member signed a declaration stating that they did not want the trustees to address insurance within the MyPrint Super Fund.
On 7 August 2012, it became law that SMSF trustees review their fund’s investment strategy at least annually, taking into account changing member circumstances and giving consideration to insurance. Failure to comply is considered a breach of Superannuation Industry Supervision (SIS) Act operating standards which can result in trustees being fined thousands of dollars.
As the members of the MyPrint Super Fund had each signed a declaration confirming they did not want insurance addressed, the trustees believed they had met their obligations.
In January 2013, Tony suffered a major stroke and lost the use of both legs; he was declared permanently disabled and unable to continue working. Under early release conditions, Tony claimed his superannuation entitlement, but given the MyPrint Super Fund’s aggressive investment strategy and a declining equities market, his super benefit was not as substantial as he’d hoped.
Without disability insurance, Tony was forced to sell the family home to cover medical expenses. His wife and children were devastated, prompting Tony to seek legal advice.
He discovered that by signing a waiver of insurance declaration the MyPrint Super Fund did not automatically remove the trustees’ obligation to consider insurance within the fund, although they could use the declaration to defend their actions if Tony chose to take the matter further.
In the end, Tony decided to take legal action, at a time when he could least afford the stress and cost, believing he had no other choice. This all could have been avoided by them receiving professional advice on insurance.
Please contact us if you would like professional guidance on including insurance cover within your super fund.
www.smsfessentials.com.au SMSFs face life insurance law challenges (David Glen 4 September 2013)
www.moneymanagement.com.au SMSFs: an insurance opportunity (Stephen Bone 28 November 2012)
www.theaustralian.com.au SMSF insurance needs should be considered (Tony Negline 10 September 2013)
www.smsfessentials.com.au SMSFs and insurance: death and permanent disability cover (Cameron Peck 20 February 2012)