From 20 September 1998, changes to the Social Security Act and the Superannuation Industry (Supervision) legislation will provide a social security assets test exemption and a higher pension reasonable benefits limit to certain lifetime and life expectancy pensions and annuities. This is a significant concession that will provide further encouragement for persons to take their superannuation in the form of a pension or annuity, rather than a lump sum.
While the majority of these income stream products are already subject to appropriately rigorous prudential protection, the Government has been made aware of circumstances where this may not be the case.
In view of the generous taxation and social security treatment afforded to such products and the need to maintain public confidence in the retirement income streams industry, the Government is concerned to ensure that providers of income streams will be in a position to meet the promised payments as they fall due. Accordingly, the Government proposes to amend the SIS legislation to ensure that all funds offering such products receive an appropriate level of prudential supervision. In particular, these funds will have to provide actuarial certification that they are able to meet promised payments as they fall due.
Most superannuation funds providing pensions are already obtaining actuarial advice (for tax purposes) and so this measure will require little, if any, additional cost. Superannuation funds not providing benefits as income streams that qualify for the assets test exemption and higher pension RBL, such as those providing allocated pensions only, will not be affected by the measure.
30 August 1998
Penny Farnsworth
Senator Kemp’s Office
0419 482 497
Keith Chapman
Australian Prudential Regulation Authority
(02) 6213 2167