A parliamentary committee has chosen to ignore the concerns of the FPA and more than 40 financial advisers over proposed legislative changes that would affect new applications to the pension bonus scheme and alter the provisions for account-based pensions and annuities.
The Senate Standing Committee on Community Affairs yesterday filed its report on the Social Services and Other Legislation Amendment Bill 2013, recommending the bulk of the bill be passed without amendment.
This included the passage of two schedules: the pension bonus scheme and extending the deeming rules to account-based income streams.
The passage of these two schedules would save the budget $80.5 million over three years and $161.7 million over four years, committee chair and Liberal Senator Sue Boyce said in the report.
The committee received more than 40 submissions from financial advisers, Boyce said.
The key concerns expressed in the submissions centred on the potential disincentive the deeming provisions might have on the responsible management of retirees’ superannuation assets.
The reduction in competition between financial products and product providers by offering preferential social security treatment to pension schemes that were not asset backed was also a concern.
Another issue raised by advisers was equity implications, with claims the measures would disproportionately affect Australians with modest means and therefore lead to greater reliance on the aged pension.
In terms of a possible anti-competitive effect, the FPA said if the value of the underlying asset was used to deem the income derived from the financial product, then financial products without an underlying asset, such as defined benefits scheme pensions or annuity products, might have a lower income than the deemed income of an account-based pension.
“We do not form a value judgment by comparing these products, but stress that product recommendations made by financial planners should be influenced by the circumstances and goals of the client, and not arbitrary distinctions in the social security law,” Boyce quoted from the FPA’s submission.
In response to the FPA’s concerns, the Department of Social Services (DSS) said people with non-account based income stream products had no access to their capital, no investment choice and no ability to change the amount of income they received each year to reflect the changes in the deeming rates.
The DSS said it would not be appropriate to subject those products to deeming, Boyce said.
“The committee supports extending the deeming provisions to align treatment of account-based superannuation streams with the deemed income rules applying to other assets,” she said.
“The committee agrees with National Seniors Australia that it is important that people with similar financial assets are treated consistently under the income support system.”
Under the planned amendments, new applications to the pension bonus scheme made after 1 March 2014 would be disallowed. The pension bonus scheme provides a bonus to individuals who defer their pension and remain in the workforce.
Changes would also be made to the Social Security Act and Veterans’ Entitlements Act to treat account-based pensions and annuities under existing rules for financial investments and financial assets.
The bill covers account-based pensions as well as asset-tested annuities, which are covered under the new regulations.
Written By Kate Kachor.