The Government today announced a package of measures that build on the superannuation integrity regulations announced in the 2004-05 Budget as they relate to DIY funds.
“Today’s announcement addresses concerns arising from any unintended consequences of the Government’s move to enhance the integrity of the superannuation system,” Minister for Revenue and Assistant Treasurer, Senator Helen Coonan, said.
After undertaking consultations with industry, the Government has developed a three-pronged approach that combines:
- The release of design features of the new complying market linked income stream which will be available from 20 September 2004. The market linked income stream combines the investment flexibility of an allocated pension with the tax and social security benefits of a complying pension;
- A transition period to allow members of a DIY fund at 11 May 2004 who retire the ability to commence a complying lifetime or life expectancy pension until at least 30 June 2005;
- A Government led review into the feasibility of small funds providing a defined benefit pension without the prudential and tax avoidance risks.
Market Linked Income Stream
The detail of the new complying market linked income stream was announced by the Minister on 16 June 2004.
Complying market linked income streams will provide an excellent alternative to complying lifetime and life expectancy pensions for most DIY fund members and fill a key missing niche in the pension market.
Key features of the complying market linked income stream are:
- It will be available to funds with less than 50 members and will provide the same legitimate tax concessions as defined benefit pensions including the higher pension reasonable benefit limit (RBL) of $1,238,440 and it will qualify for a 50 per cent asset test exemption.
- It will provide investment choice and the same investment flexibility as the very popular allocated pension. As a result, it is expected to offer the potential for higher investment returns over time. By making conservative investments a retiree can provide a steady, more predictable income stream.
- It has been developed to provide for a life expectancy term that is more generous and flexible.
- Unlike defined benefit pensions, the market linked income stream is simple and inexpensive to run. There is no need to pay an actuary to establish and regularly review it.
- Upon death, the balance of the income stream can be paid to a spouse, dependant or the estate.
Transition
To ensure that the integrity changes announced in the Budget do not impact unfairly on those nearing retirement, the Government will amend the gazetted regulations to allow DIY fund members to continue to commence complying lifetime and life expectancy pensions until 30 June 2005.
The amendments will be tabled in Parliament as soon as possible.
This means that people who were DIY fund members on May 11 2004 and who retire will now have until 30 June 2005 to access lifetime and life expectancy pensions from their DIY fund.
The transitional arrangements give DIY fund members the opportunity to consider the new flexible market linked income stream or opt for the old arrangements should this best suit their needs.
Review
The Government will conduct a review, headed by Treasury, and in consultation with the Australian Government Actuary, the ATO, industry and other stakeholders, into the safety and tax avoidance risks of defined benefit pensions. The review will examine the continued demand for complying defined benefit pensions and whether such a product can feasibly be provided by a small fund in a manner that is not detrimental to the integrity of the retirement income and tax system.
“The Government remains concerned about any deliberate misuse of defined benefit pensions by small funds, and will closely monitor industry developments,” Senator Coonan, said.
The review will be finalised by April 2005.
Media Contact: Jane McMillan 0438 690 305
Technical Contact: Darren Kennedy (02) 6277-7360 or Liza Albion (02) 9223-4388