The Federal Government has been urged to use its last Budget before the Federal Election to put in place effective measures which will allow the financial services industry to finally get rid of legacy products which no longer benefit consumers.
The Financial Services Council (FSC) used its pre-Budget submission to the Treasury to point out that the rationalisation of legacy products has been recommended by successive inquiry processes, including the 2014 Financial Services Inquiry, the Productivity Commission (PC) inquiry into superannuation and the Royal Commission.
FSC chief executive, Sally Loane said the organisation had estimated there were at least 600 legacy structures, each of which might contain multiple products disadvantaging an estimated 2.44 million consumers.
“Our members have modernised their products over time, but customers with older products cannot easily be transferred into newer products. This is for several reasons, including significant tax liabilities triggered by shutting down legacy products, and a ‘better off’ test that is complex and expensive to apply. We have offered solutions to these barriers in our submission,” she said.
Loane said the FSC believed a rationalisation scheme should involve a test to ensure a rollover to a new product was in the best interest of consumers as a whole, and that taxation should be removed from any rollover process.
Elsewhere in its pre-Budget submission, the FSC called for the abandonment of proposals to remove the capital gains tax (CGT) discount and fund level and replace with a measure targeted at any investors that are inappropriately accessing the CT discount.
As well, it called on the Government to implement a zero rate of non-resident withholding tax on Asia Region Funds Passport payments – something which it said would bolster the success of Australia’s participation in the Funds Passport which started on 1 February.