Risk houses lose out in pension reversal

When representatives of the financial services industry travelled to Canberra for a meeting on May 31 with the Treasury Department it was for a single purpose and they wanted one question answered.

The group that gathered was a who’s who of representative bodies, with the Financial Planning Association (FPA), the Investments and Financial Services Association, Association of Superannuation Funds of Australia, Small Independent Super Funds Association, Online Super, Taxpayers Australia and the accounting bodies meeting with representatives from the Treasury, the Tax Office, the Prime Minister’s department and the office of the Assistant Treasurer, Senator Helen Coonan.

The meeting was called to table the industry’s concerns surrounding lifetime pensions being removed from self-managed superannuation funds (SMSF) as outlined in the Federal Budget of May 11.

Those changes were set to apply from June this year, catching much of the advisory industry on the back foot as they scrambled to find alternatives for clients who planned on starting the lifetime pensions within the coming months.

And it was that surprise action by the Government which was the single question many groups came to get answered — where was the industry consultation when making the decision?

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Mariner Financial technical manager Kate Anderson says much of the industry was quite surprised by the lack of consultation, which left many advisers and clients in a difficult position.

“The Government usually consults first and this move was contrary to its own push to get the public into self-managed superannuation schemes” Anderson says.

At the time of the Budget being presented, the Government indicated that the removal of lifetime pensions from SMSFs was to tackle tax avoidance, which was supposedly occurring in some instances in the funds.

But the industry cannot understand why the Government tried to do that by limiting Choice, particularly when there were other ways of achieving anti-avoidance aims, according to FPA acting policy manager Joan Simpson.

“If we had been consulted we could have suggested other ways of meeting anti-avoidance ends, and these would not have compromised Choice — which the Government has rightly made the cornerstone of its super policy,” Simpson says.

Yet the campaign to get the Government to rethink the decision was also spurred on by a number of outside forces.

At present, there are more than 300,000 SMSFs, with up to five fund members, many in small business, and those members expressed their concerns to local members of parliament who no doubt passed the feedback to their leaders, who in turn let Treasury and the Tax Office know about the heat this decision had generated.

According to Multiport technical director Phil La Greca, who attended the Canberra meeting, Coonan’s office reported receiving 100 calls on the issue and the backlash was being seen not just as a financial issue but a political one as well.

While only a small percentage of SMSFs would have been affected by the Budgetary changes due to the low numbers which actually run lifetime pensions, the removal of this option at short notice was sufficient to generate a strong public reaction.

That reaction would have had greater resonance in Canberra during an election year, and given the immediate and strong response from the financial services industry and consumer groups, some reassessment of the decision was inevitable.

Yet despite all the politicking and lobbying, defined benefit pensions within SMSFs are not completely out of the woods, and much needs to be clarified.

The Government has not removed the restrictions it outlined in the Budget but rather has moved the cut off date from June 30 this year to the same date in 2005.

It has also stated that only those who were members at midnight on May 11, 2004, of an eligible SMSF will still be able to start a lifetime pension from the fund until the June 2005 cut off date. The pension is not restricted by that date, just the time to apply to start the pension.

Fund members who have not retired and drawn a pension by that date may not have this option available to them after then.

Simpson says that financial planners and other advisers should use the ‘reprieve’ to review their clients’ super fund trust deeds so that there is no ambiguity that the fund can run a lifetime pension.