Protecting Your Super and PMIF reforms: how default insurance gets cancelled in inactive super accounts, and what late-career members need to check

For Australian late-career employees and pre-retirees with multiple super accounts accumulated over a long working life, the Treasury Laws Amendment (Protecting Your Superannuation Package) Act 2019 commencing 1 July 2019 and the Treasury Laws Amendment (Putting Members' Interests First) Act 2019 commencing 1 April 2020 have produced a specific, often-overlooked risk: inadvertent cancellation of default death and disability insurance in older or smaller super accounts that have become inactive. The reforms required super funds to cancel default insurance cover in accounts that have received no contributions or rollovers for 16 consecutive months unless the member elected to maintain the cover, prohibited new default insurance for accounts with balances under $6,000 unless the member opts in, and prohibited new default insurance for members under 25 unless they opt in. The policy intent — protecting member balances from erosion by fees and unwanted insurance premiums — was sound, but the implementation has produced material insurance losses for late-career members who didn't notice or didn't act on the cancellation notifications. For a 60-year-old reviewing their position now in 2026, default cover that was cancelled three or four years ago may be effectively impossible to replace at equivalent terms — making the audit of historical insurance status an essential part of pre-retirement planning.

The Protecting Your Super (PYS) reforms addressed the erosion of small and inactive super balances. Inactive accounts — those receiving no contributions or rollovers for 16 consecutive months — saw their default insurance cancelled unless the member specifically elected to keep it. Small inactive accounts (under $6,000) were also affected by the inactive low-balance account rules: such accounts are transferred to the ATO for consolidation with the member's active super, with the cover lost in the process. Fee caps were imposed on small accounts, and exit fees were banned (with limited exceptions). The reforms targeted a real problem: members with multiple jobs throughout their careers had accumulated multiple small super accounts, each charging fees and (in many cases) charging premiums for default insurance that the member didn't know about and might not need. For young members early in their careers, the fee and premium drag could erode small balances substantially over time. The reforms reduced this erosion — but at the cost of cancelling cover that some members would have preferred to keep.

The Putting Members' Interests First (PMIF) reforms extended the framework to new defaults. From 1 April 2020, new members under 25 received no default insurance unless they opted in. New accounts with balances under $6,000 received no default insurance unless and until the balance reaches $6,000 (after which default insurance may be issued) and the member doesn't opt out. Specific exceptions applied for members in dangerous occupations (police, fire, emergency services) where the case for default cover was strongest. The PMIF rationale paralleled PYS — protecting young and small-balance members from automatic insurance enrolments that may not match their needs. For older members with substantial balances, PMIF's direct effect was modest, but combined with PYS the overall framework of "no insurance without member action" became the default in many situations where previously cover was automatic.

The member notification process is the critical mechanism that determines whether members maintain their cover. When an account is approaching the 16-month inactivity threshold, the fund must notify the member of impending cancellation — typically with several months of warning. The notification informs the member of the cover that will be cancelled, the date of cancellation, and the options available: maintain cover by election (typically online), make a contribution or rollover to the account (which restarts the 16-month inactivity clock), or accept the cancellation. After the notification period and the cancellation effective date, cover ends. Re-establishing cover after cancellation typically requires fresh underwriting — medical questionnaires, possibly examinations — and the cover offered may be different from the original (different sum insured, different premium, exclusions for pre-existing conditions developed since the original cover commenced).

The practical exposure for late-career members is substantial. A typical Australian worker with 30 or more years of work history may have five to ten super accounts spanning previous employers, some long inactive. The notification of impending cancellation reaches the address the fund has on file — which for old accounts may be a previous residence, parents' home, or even the original employer where the account was set up. Members who moved without updating fund records may not have received the notice. Members who received the notice but didn't recognise the importance of the action — perhaps assuming the cancellation was "just one of those super things" — may have allowed cover to lapse. The cancellations occurred in waves through 2019–2021 as funds worked through their inactive account books; many members are only now (2026) discovering the cancellation when they review their super in pre-retirement planning.

The "effectively permanent" loss aspect is the worst feature of the late-career exposure. For an older member who lost default life and TPD cover through inactive account cancellation, re-establishing equivalent cover can be challenging or impossible. Underwriting requirements are extensive — medical questionnaires, possibly examinations, financial questions — and any pre-existing conditions developed since the original cover commenced may be excluded or loaded. Age limits vary by fund but typically cap new life cover at age 65 or 70 and TPD at age 60 or 65 — for members past these thresholds, no new cover is available. Premium pricing for older members at original underwriting reflects the higher mortality and morbidity risk — premiums for a 60-year-old new entrant may be many times what the original 30-year-old default premium was. Pre-existing conditions are particularly difficult — members with managed conditions (diabetes, hypertension, prior cancer treatment, mental health history) may find cover unavailable or heavily restricted at the new underwriting. For some members, the cancelled cover is genuinely irreplaceable. The related article on articles/2026-05-04-salary-continuance-insurance-super-late-career covers the wider insurance-through-super framework that interacts with this issue.

The audit work for late-career members and advisers reviewing the position has a specific shape. Identify all super accounts through ATO online services (via myGov), employment records, and fund correspondence. The ATO's super search service through myGov can identify accounts the member may have forgotten. Confirm active versus inactive status for each account — when was the last contribution or rollover received? Has the inactivity clock started? Check current insurance cover in each account — type (life, TPD, income protection), amount, cost, and any conditions or exclusions. Pull current member statements from each fund. Identify accounts where cover has been cancelled by reviewing past correspondence and checking current cover statements. For cancelled accounts, the member statement typically shows the insurance section as "no cover" or "cancelled". Assess current cover adequacy against current life circumstances — mortgage, dependent partner, adult children with disabilities or other support needs, plans for the next 5 to 10 years. Plan re-establishment if there is a material gap. For active accounts, this typically means consolidating to a single fund with appropriate cover. For lost cover, this means fresh applications subject to underwriting.

The interaction with super consolidation is one of the central planning considerations. Many late-career members consolidate super at retirement or pre-retirement — combining multiple accounts into a single primary fund. Consolidation triggers cover cancellation in the source funds (the rollover empties the account, ending its insurance). Cover in the receiving fund either continues (if already in place) or requires fresh application and underwriting. For members who had valuable cover in a fund being rolled out of, the consolidation can produce additional cover loss on top of the inactive-account losses. The pre-consolidation review should specifically map cover in each fund and assess whether it should be preserved (by leaving the account active with a small balance and ongoing minor contribution, or by deliberately routing future contributions there) or accepted as lost in the consolidation.

The practical advice work for late-career clients managing super insurance has a specific shape. Map the full insurance picture including all super accounts and any outside-super insurance arrangements (personal life cover, mortgage protection, business insurance, group cover through employer). Calculate the gap between current cover and current need, considering family situation, debt position, and dependants. Assess affordability of new or replacement cover at current age and health. Prioritise re-establishment where the gap is material and cover is available. Coordinate with consolidation strategy — don't accept additional cover loss through consolidation if the cover is valuable. Communicate the time-sensitivity clearly — cover decisions become harder with each year of age and any health changes. Document advice carefully given the long-tail risks (a denied insurance claim five years from now could turn on advice given today). Avoid the assumption that "I have super, I have insurance" — many clients and even some advisers default to this assumption, which the PYS and PMIF reforms have invalidated for substantial cohorts.

What do worked planning examples show?

These two cases show how the PYS/PMIF cancellation issue plays out for typical late-career scenarios. Illustrative only — not personal advice — using FY25-26 figures.

Case 1 — Robert, 58, recently consolidated his super for pre-retirement planning. Discovered three former employer accounts that had been inactive for five years or more, all with default insurance cover originally totalling approximately $800,000 of life and TPD cover. On these facts, all three former-employer accounts had cover cancelled in 2020–2021 due to PYS inactivity rules. Notifications had been sent to old addresses; Robert never received them. Current cover in his active fund: $200,000 default life cover. Total current cover: $200,000 versus original $1 million. Robert has a $400,000 mortgage and a non-working spouse. Insurance gap: approximately $600,000. Strategy: apply for additional cover in his current fund, subject to underwriting. The outcome will depend on current health and any new conditions. The trap to avoid is failing to discover the cancellation until a claim event — by which point reactivation is impossible.

Case 2 — Margaret, 62, planning to retire at 65. Has primary super account with $400,000 of life cover, plus a small inactive account ($4,000 balance) at a former employer. On these facts, the small inactive account was transferred to the ATO under the PYS inactive-low-balance-account rules in 2020. The cover in that account ($300,000 of life cover) was cancelled in the transfer. Margaret didn't notice — the small balance was eventually rolled to her primary fund. Current cover: $400,000. Original total cover: $700,000. Margaret's husband is well-funded for his own retirement; her cover is for legacy purposes (wishes to leave $300,000 to a grandchild with disabilities via her estate). Strategy: assess whether the legacy purpose is now best served by other means — a portion of her super left to that grandchild via BDBN, a separate insurance bond outside super, or other arrangement. Insurance reactivation may not be the most efficient path at her age. The trap to avoid is reflexively trying to restore the cover without considering whether the underlying purpose is still best served by insurance.

For Australian late-career members and pre-retirees, the Protecting Your Super and Putting Members' Interests First reforms have produced a substantial pattern of inadvertent default insurance cancellations in inactive and small super accounts. The reforms achieved their policy goal of reducing fee and premium erosion of small balances, but at the cost of cover that some members would have preferred to keep — and that, once cancelled, is often effectively impossible to replace at equivalent terms. For members reviewing their position now in 2026, the audit work involves identifying all super accounts, confirming cover status, assessing the gap against current need, and planning re-establishment where feasible. For advisers, the insurance audit should be a standard part of pre-retirement reviews — the assumption that "I have super, I have insurance" is no longer reliable. The advice work is structural: map, assess, plan, document. The cost of missing this audit can be substantial — for an uninsured death or disability event, the family can face the financial consequences without the cover that was originally in place but quietly cancelled.

Sources

• Federal Register of Legislation — C2019A00016
• Federal Register of Legislation — C2019A00079
• MoneySmart (ASIC) — Insurance through super
• Australian Taxation Office (ATO) — Inactive low balance super accounts
• MoneySmart (ASIC) — Consolidating super funds