Super changes may push down product fees

The proposed simplification of the superannuation system released with the Federal Budget may put downward pressure on management fees for superannuation related products and will lead to significant changes to client retirement strategies, early analysis has indicated.

AXA Australia technical services manager Lachlan Semple said proposed reductions in the complexity of superannuation rules would simplify pension and annuity products.

He said this simplification was likely to reduce the level of differentiation between retirement products and could make pricing a more important consideration for advisers and clients in product decisions, putting pressure on providers to reduce their management fees.

Semple said legacy products would be deemed to meet the new standards, as it was likely there would be contractual obligations for providers to maintain their terms.

The proposed modifications to the superannuation system are open for public comment until August 9, 2006, and will not be implemented until July 1, 2007, but Semple said it was likely they would be adopted and dramatic, mostly positive, changes to retirement planning strategies would result.

“The super changes are attractive for most in the community,” he said.

Specifically, Semple said changes to taxation, the removal of reasonable benefits limits (RBLs) and the simplification of payment and contribution rules would affect retirement planning for clients.

For example, he expected changes in taxation and payment rules to make re-contribution strategies and superannuation splitting irrelevant from July 1, 2007.

He said term allocated pensions were also likely to become largely redundant for clients whose main motivation for using the products related to RBL management and income payment flexibility.