FSC calls for Budget relief on legacy product rollovers

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.

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“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. 




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And there it is - CGT etc concessions. Now that commissions will be banned on the old products and Advisers will therefore no longer be doing the admin/service for these products, the product providers know they have a problem. Solution, roll them into something simple like, lets guess, an My Super. Result, product provider now has ownership of the client and the adviser is dropped off. Next step, charge an inter fund advice fee and keep the advisers away.

So, this win my mind will be the final result of the Banking?? RC - the product providers get the lot.

And some how, no one will notice
"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".

Easy way around it - get the Federal Government to make the problem go away.

An that is how Banks take it all back.

How strange that the FSC through their Chief Executive has stated that legacy products should be closed down and clients moved to newer products on offer.
Apart from the obvious, such as CGT and age/health restrictions, who has decided that the terms offered on newer products are better than the existing legacy products?.
It seems to me, members of the FSC (viz life companies) have coerced clients to leave legacy products by unmercifully increasing the premiums on those products to the extent that they have tried forcing those clients to migrate to newer products offering inferior contract terms .
You just have to exam the morality of life companies who have decided to charge premium on old legacy products for a period because it suited them but now future profitability is at risk because of contingent liabilities now being exposed under those legacy products.
Why those conducting reviews into the reasons behind the FSC push to get rid of legacy products can't see this, is bewildering.

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