The government has flagged it will establish a working group to transition consumers out of legacy life products as part of this year’s federal budget, a move that has been welcomed by industry bodies.
As part of a raft of measures to rationalise outdated financial products, the budget papers indicated the government would allocate $2.5 million towards establishing an industry working group to streamline the transition process for legacy life policies and managed investment schemes.
Commenting on the move, FSC chief executive Sally Loane said the industry body was pleased the government had decided to tackle the “vexed issue” of legacy products across the financial sector.
“We look forward to working closely with the government to ensure that the product modernisation scheme for life insurance and investment products removes the tax and social security barriers which have prevented millions of Australians from moving from older products to more modern ones,” Ms Loane said.
“Approximately 1.6 million Australians are currently in outdated life insurance products. The ability to move into a modern product without any tax penalties will be a great outcome for consumers.”
The government had also unveiled further concessions for consumers in legacy financial products as part of Tuesday’s budget, including a two-year amnesty for those in market-linked, life-expectancy, lifetime pension and annuity products that were more than 14 years old to move to a more modern product without triggering any of the concessional cap rules.
Ms Loane said while increasing efficiencies for consumers was welcome, the devil was in the detail in terms of other tax and welfare implications for retirees.
“The ability to move out of legacy pension products, many of which are outdated and expensive, is a welcome move,” she said.
“However the tax and social security settings will be the key factor in consumers and their financial advisers in determining whether to take up the scheme.”
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