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Thursday, 9 December 2004
Page: 36

Senator KEMP (Minister for the Arts and Sport) (11:38 AM) —The government does not support Senator Sherry's motion to disallow these superannuation regulations. As Senator Sherry will know, these regulations were introduced to target arrangements that sought to provide tax and retirement income benefits far beyond what was intended by the parliament. In particular, the regulations address arrangements whereby individuals in non-arms-length superannuation funds could manipulate the design of a defined benefit pension to avoid reasonable benefit limits, as well as create inappropriate estate planning opportunities. Also the regulations, by requiring the minimum of 50 members, ensure that a fund providing a defined benefit pension operates on an arms-length basis and is in a satisfactory position to pool the investment and mortality risks associated with paying a defined benefit pension. Without the government's quick and decisive action, a defined benefit pension arrangement had the potential to become a serious risk to revenue as there was clear evidence that schemes were growing rapidly.

At the Senate Economics Legislation Committee hearings that Senator Sherry attended, the Australian Taxation Office clearly identified that the number of individuals commencing do-it-yourself pensions has grown from tens in the late 1990s to thousands from the year 2000 onwards. The ATO also identified that in 2003 well in excess of $1 billion of superannuation moneys flowed to do-it-yourself pensions, yet a little over 40 per cent of these moneys were being reported for reasonable benefit limit purposes. The government had to act to limit the abuse of the tax system. Our intention has always been to return the tax treatment of pensions to the level playing field originally anticipated by parliament.

Of course the government is aware that the action created some transitional issues for those who wish to retire and take a complying pension from their self-managed superannuation fund. To address these concerns, the government put in place a three-pronged approach to attend to the unintended consequences that arose out of the budget measures. Firstly, the government released details of the new complying market-linked income stream now advertised as the term allocated pension. This new product combines the flexibility of an allocated pension with tax and social security benefits of a complying pension. The assets supporting the pension are eligible for the higher reasonable benefit limit, while only 50 per cent of the assets will be included in the social security assets test. It also provides for a more flexible term, offers the potential for higher investment returns over time and is expected to be less expensive to establish and administer as it does not require the involvement of an actuary. All superannuation funds, including small funds, can provide this pension. Secondly, the government introduced transitional arrangements to assist those people who genuinely are inadvertently caught up by the change of rules. Members of funds with fewer than 50 members who wish to retire have the ability to commence a complying lifetime or life expectancy pension. This transitional arrangement will continue until at least 30 June 2005.

Thirdly, the government announced a review of the feasibility of small funds providing a defined benefit pension without the prudential and tax avoidance risks. In particular, the review will examine options for small superannuation funds to provide pensions to their members, including consideration of the design features of prospective pensions that address the government's concern and could attract complying status for taxation and social security purposes, the management of investment liquidity and mortality risks and the likely future demand for pensions with defined benefit characteristics. The review process is well under way. Initial submissions provided to Treasury have assisted in the development of a discussion paper, which will be released shortly, outlining the key issues as well as canvassing a broad range of options for the community to comment on. The government will take into account the outcome of these consultations when considering the report on the review due in April 2005. Every sensible person believes that this clearly provides an appropriate framework and a balanced process to consider options to allow members of small funds to gain access to suitable pension products. In the meantime, the original regulations ensure that existing loopholes are not exploited while the transitional rules allow those approaching retirement to continue to access a full range of pension options.

What does the Labor Party intend to do? What does the Labor Party want? The Labor Party wants to reject the regulations. The Labor Party wants to open the floodgates to continued abuse of the do-it-yourself pension arrangements by the very wealthy at a significant cost to the taxpayer.

Senator Sherry —There is no evidence to that effect.

Senator KEMP —The Senate Economics Legislation Committee, in its report, clearly recognised tax and estate planning opportunities that were possible in the defined benefit pensions and were previously allowed to be paid from small superannuation funds, Senator Sherry. You were there; you would have heard that comment. You asked for the evidence. Those are the matters which were tendered to that committee. Senator Sherry—for reasons best known to him—and the Labor Party want to ignore that evidence. It is really an astonishing performance from Senator Sherry, I have to say. But nothing that the Labor Party does will ultimately surprise us.

Let us be clear about what the Labor Party is proposing: by disallowing the regulations the previous superannuation rules will apply. This will allow small funds to provide defined benefit pensions as well as allow new defined benefit funds to be created on an improper basis. Significantly, many funds could amend their governing rules to permit inappropriate arrangements in anticipation that they would be grandfathered by any subsequent regulation. Undoubtedly, Senator Sherry, as you and I know, there would be aggressive marketing of these schemes. The Labor Party's disallowance of the regulations would allow open slather to unacceptable tax-planning arrangements.

Senator Sherry —What rubbish!

Senator KEMP —Senator Sherry is obviously sensitive about this issue. It is not the first time that the Labor Party has taken a very soft approach on tax avoidance. When I was Assistant Treasurer, the Labor Party was notorious for taking a soft approach on tax avoidance measures. So it comes as no surprise to me to hear Senator Sherry's comments in this chamber today. Senator Sherry has indicated in the past that he supports the government's review into the final pension options—it should be available to small funds. But Senator Sherry needs to understand that this is just one aspect of a balanced approach to address this important issue. Until the final outcome of the review is decided, the government believes the regulations are required to protect the integrity of the retirement income system. Senator Murray, we welcome the support of your party for the government's position. Let me make this clear: while the government is firmly committed to providing incentives and flexibility in the retirement income system, this must be on the basis that it is both neutral and fiscally sustainable. It is on this basis that the government does not support the opposition's motion.

Question put:

That the motion (Senator Sherry's) be agreed to.