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Budget could mean big opportunity for product providers: Tria

Not-for-profit funds may shift to a 'full service' model as a result of last week's federal budget measure outlining a $1.6 million lifetime cap on pension balances, says Tria Investment Partners.

In a Trialogue note on the impact of the proposed changes to superannuation in the 3 May federal budget, Tria Investment Partners said the introduction of a $1.6 million lifetime cap generates a big opportunity for all product providers.

From 1 July 2017, retirees with more than $1.6 million in their pension balance would have to roll the excess out of their pension account and into their accumulation account, where earnings will be taxed at 15 per cent.

The excess amount can also be taken out of superannuation and placed into another destination, which could pose problems for super funds looking to retain funds under management (FUM), according to Tria.

It could make sense for members to roll as much as $500,000 out of super in order to take advantage of their personal tax-free threshold on the earnings, said Tria.

"If all affected members did this, there would be around $23 billion of assets leaving the superannuation system by 1 July 2017, as a direct result of the change. That's more than half the system's net inflow we're expecting this year," said Tria.

"This doesn't create much of a problem for retail funds, which can generally cater to their members' every whim – investment, super, IDPS, masterfund, bank account, TD, margin loan, property, alternative, passive, high-octane...the list goes on," said Tria.


But for the not-for-profit super funds that don't have ready access to such a long list of investment products, it will be more of a challenge.

"The opportunity is too small for each fund to build its own non-super solutions, but we suspect they'll be looking at other ways of collaborating on a product to make sure they can look after all of a member's retirement needs, a place previously reserved for retail funds," said Tria.

"The government might unwittingly have caused not-for-profit super funds to transition even further towards being full-service financial services firms.

"And as a result we can expect to see those funds targeting a greater share of their members' financial services 'wallet'," Tria said.