The Federal Treasury has been urged to undertake further consultation around the development of the Government’s comprehensive income products for retirement (CIPRs) regime amid concerns that its proposed settings risk significantly eroding any potential increases to income for retirees.
While the Government made the freeing up development of post-retirement products a centrepiece of last year’s Budget, responses to the Treasury’s exposure draft of the legislation has identified significant shortcomings in the arrangements.
Those shortcomings have been pointed out by the Association of Superannuation Funds of Australia (ASFA) which expressed particular concern at the exposure draft position that there would be no income tax exemption on deferred products until after meeting a nil condition of release.
The ASFA response said that, as a matter of policy, its members had observed that taxation during the pre-retirement deferral period would erode the potential additional income boost sought from the CIPR products by reducing the effect of the long-term compounding.
As well, it said that the arrangement would adversely affect member take up rates and make the building of investment solutions more complex.
“There will be a need to structure income products into pre and post-retirement to account for the taxation differential,” the submission warned. “This will add to complexity on member communication and administration.”
“Members are of the firm belief that the social security treatment of these products will be a critical factor influencing consumer demand, and accordingly the take-up rate, of such products.” the ASFA submission said. “As such, it is imperative that there be appropriate asset and/or income test treatment of deferred products during their deferral period.”
It said that ASFA appreciated that the issue was being considered separately as part of the Department of Social Services consultation, but added that it was nevertheless important for Treasury to be aware of the significance of the potential effect that social security treatment has upon consumer demand.
