Allowing rollovers from legacy pensions would have zero cost for the federal government and such a move would be consistent with other efforts to reform the superannuation sector, a technical manager has claimed.
Australian Executor Trustees senior technical services manager Julie Steed said the cost of maintaining legacy pensions had in many cases passed the value of the pension itself and while the cohort of pension holders was small, the impact of being trapped in these pensions was growing.
Speaking with selfmanagedsuper, Steed said: “Inside SMSFs, the number of people we are talking about is 4000, so it is not a large number, but the impact on those people of being stuck in these dreadful products is really significant.”
She also pointed out an amnesty to prevent a five-year Centrelink clawback after a rollover to a modern product had precedent, including during the global financial crisis (GFC) in 2007.
“During the GFC, when clients were losing solvency in pension, a legislative instrument was drafted which stated if someone was to wind up an asset test-exempt product, Centrelink would not apply a five-year clawback,” she said.
“Absolutely no one is asking for any concessions going forward and pension holders don’t need them anymore because the values in the pensions are so low that even if they were 100 per cent asset tested, it would make no difference.
“So there is no dollar cost to the government in allowing these rollovers – absolutely zero.”
She pointed out pension holders who were blocked from moving out of a legacy product were unable to pay death benefits in some cases, had funds trapped in reserves and may be stuck in an expensive SMSF structure or one that was no longer suited to ageing members.
“We have just passed legislation that Australian Prudential Regulation Authority-regulated funds are not allowed to charge fees of more than 3 per cent of the account balance,” she said.
“In modern products we would be horrified if fees cost that much and even the worst legacy retail funds still don’t charge 3 per cent, but in many cases the fees on these pensions represent more than 3 per cent of the account balances.
“If the Hayne royal commission had received some of the examples we are seeing about the difficulties this is causing pension holders, this would have been raised as an issue at the time because this difficulty is something the law has forced on people.”
Steed also rejected claims from a government minister that legacy pensions were too complex to reform without considerable effort and the industry could make the changes in a matter of days if given permission to do so.