By Blake Briggs, Senior Policy Manager (Superannuation) FSC
The FSC has strongly supported the Government’s policy to remove tax, social security and regulatory barriers to open the market for new retirement income stream products.
These reforms have moved at glacial pace, however there have been major advances in the last twelve months that show that there is broad commitment to ensuring the reforms are a success.
The Government announced in the 2016 Budget tax changes to enable these products to come to market, and these were passed with bi-partisan support in late 2016. The Department of Social Services has also recently consulted with the superannuation industry on the social security treatment of these products.
The FSC has advised that it is important that the social security treatment of income stream products be considered in the context of the broader objective of enabling MyRetirement products to be offered. The DSS process would best continue to develop a flexible, principles-based approach to regulating these products to allow innovation and tailored product design.
The FSC has also recommended that the means test treatment of deferred products, that meet the capital access schedule, should be asset tested using reduced purchase price from the date of purchase, or the date on which the deferred product becomes eligible for the pension phase earnings tax exemption, if that is a later date.
The income test for deferred products should be the income received in each year minus a deduction amount calculated on the same basis as the reduced purchase price; since no income is received during the deferral period there is no income to assess and no deduction amount would apply or be credited.
The importance of social security treatment of retirement income products cannot be overstated. The impact on pension eligibility of consumers, and the certainty of income that may not be received for decades hence, is key to successfully promoting these products and reforms to the market.
The ongoing cross-industry consensus on what is needed to bring these products to market is pleasing and the FSC is supports it continuing.
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