Tax risk from ban on super risk commissions

The Federal Government has been warned that its decision to ban all commissions on superannuation sold within the context of superannuation risks creating tax disadvantages for consumers.

A number of analyst reports have pointed to the risk that, confronted by the ban on commissions within superannuation, some advisers may opt to sell life risk products outside of the tax-advantaged superannuation environment.

An analyst report issued in the immediate aftermath of the Future of Financial Advice (FOFA) changes by Citigroup Global Markets warned that “there would be more incentive for advisers to sell insurance outside super rather than within it”.

At the same time it pointed to the fact that the best tax outcome for consumers would be to buy insurance inside super, adding that “a conflict emerges”.

The analyst report noted that the Government believed the issue could be handled by the application of the proposed new “best interests test” and the monitoring of churn.

The potential for conflict was also noted by a Credit Suisse analyst report, which acknowledged that because the FOFA changes would not ban commissions on the sale of life risk products outside of superannuation, there would still be an incentive for advisers to sell life insurance.

“A conflict however emerges, with advisers benefiting from the sale of life insurance outside of super, while for the consumer, the tax benefit often results in the best outcome being life insurance inside super,” it said.

The Credit Suisse analyst suggested there was a risk that the price of insurance within superannuation would rise as a result of the changes.