The Protecting Your Super Package (PYS), which took effect from 1 July 2019, introduced significant changes to how insurance is managed in Australian superannuation funds. The reforms were designed to prevent unnecessary insurance premiums from eroding small or inactive super accounts.
What Changed in 2019
Before the PYS reforms, many members had insurance premiums deducted from their super regardless of their account activity. This meant:
- Workers who had left a job and stopped receiving contributions still had premiums deducting from their account
- Small or dormant accounts could be entirely consumed by insurance premiums over time
The PYS reforms addressed this by linking insurance to account activity.
The Inactive Account Rule
Rule: If your super account has been inactive for 16 continuous months — meaning no employer contributions, rollovers, personal contributions, or elections to maintain insurance have been received — the fund must cancel your insurance and notify you.
Inactivity is defined as: No activity on the account for 16 consecutive months (not 16 months of inactivity spread over a longer period).
Before cancellation, the fund must:
- Write to you (by post or email) at least 45 days before cancellation
- Explain how to elect to maintain cover if you want to keep it
How to Keep Insurance Despite Inactivity
If you receive a PYS insurance cancellation notice and want to retain cover:
- Log in to your fund’s online portal, or
- Complete the fund’s election form (usually online or by post)
- Make an active election to maintain your cover
Once you make the election, the fund is not required to cancel your insurance for inactivity. You can elect to maintain cover even with no contributions — but premiums will continue to deduct from your balance.
The $6,000 Low-Balance Threshold
Rule: Accounts with a balance below $6,000 cannot have insurance. Funds must cancel insurance on accounts that fall below this threshold.
This was designed to prevent accounts from being entirely consumed by premiums. However, it also means members with small balances who rely on super insurance lose it when their balance drops low.
Fee Cap for Small Balances
Separately from the insurance changes, the PYS reforms also capped administration fees at 3% of the account balance for accounts under $6,000. This is a fee cap — not an insurance provision — but it interacts with insurance (since insurance premiums are excluded from the fee cap).
ATO Transfer of Inactive Low-Balance Accounts
Another PYS reform: inactive accounts with balances below $6,000 are transferred to the ATO (not just to another fund). This is separate from the insurance rule:
- Balance < $6,000 + inactive 16 months = ATO transfer AND insurance cancellation
What This Means in Practice
Workers with multiple jobs: If you have an old super account from a previous employer that is no longer receiving contributions, check whether:
- You want to consolidate it (simplest solution)
- You need the insurance (if it’s your only cover for pre-existing conditions)
- You have elected to maintain cover if you want to keep it
Young casual workers: May have small or inactive accounts that lose insurance without realising it. If they subsequently need insurance (e.g., after developing a health condition), reinstatement may require medical underwriting.
Reinstating Cancelled Insurance
If your insurance was cancelled under PYS rules:
- Most funds allow you to reinstate by applying directly to the fund
- Reinstatement typically requires medical underwriting (health disclosure) — pre-existing conditions may be excluded
- Some funds offer a reinstatement window (e.g., 6 months after cancellation) with lighter requirements
For more: Death Cover in Super, Opt Out of Super Insurance, Protecting Your Super Reforms, Super Insurance Explained. For advice on your situation, speak with a licensed financial adviser via MoneySmart.