By Tim Miller
Miller Super Solutions
We all know that SMSF trustees are under an obligation to consider the insurance needs of the members and document this as part of the funds investment strategy, but with the probable introduction on a lifetime cap on non-concessional contributions and a limit on how much money can be utilised to commence a pension, what does the future hold for insurance inside super?
Insurance is always a contentious issue because we are effectively acquiring something that we may never use and under certain scenarios may never see because the realisation of a policy was subject to our own death. In the scheme of planning for retirement and indeed supporting our partner or families once we pass away, insurance could very well play a big part for many members in the future. It’s clear that many super fund members will never contribute $500,000 of after tax money or accumulate $1.6m via contributions and earnings but every member will die, to put it bluntly, and the earlier we start to recognise it the sooner we can start planning for it and perhaps that gives us the capacity to reach the $1.6m amount and give us, or more so our families, that income stream they need.
So that means we need to factor in how much money the family will need once a member passes away. If we start with the $1.6m as our base number for paying a retirement income to a member when they turn 65, is that enough if a member passes away before 65? How long will their spouse live for? These are the questions that there is no definitive answer for. Some things that we hope to get answers for definitely relate to the $1.6m transfer balance cap and whether there will be any exemptions to it such as death benefit pensions or disability superannuation pensions as both of these have the capacity to be paid longer than a standard account-based pension.
For the past 2 years we’ve had to consider insurance and for many it’s been an effortless statement in an annual review but perhaps now there is a need to consider it with a view that we may never be able to achieve our savings goals without it and it’s only going to be harder to get the older we are and the more niggles we suffer from.
General advice warning:
This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information, so please consult your financial adviser.
Miller Super Solutions is the SMSF education & training creation of Tim Miller, assisting SMSF professionals and trustees with the practices associated with establishing, running and ultimately closing down SMSF’s www.millersupersolutions.com.au/