Financial System Review (aka Murray Review)

The Government released on 20 October 2015 its response to the Review’s recommendations.  In short all recommendations bar one –were accepted by the Government.  The only recommendation not accepted was the recommendation to close down limited recourse borrowing.  Consequently the Government has confirmed that limited recourse borrowing is part and parcel of the current superannuation system.  

While the focus of the Government’s response to the Murray Review has been the decision to continue limited recourse borrowing, there are, from a superannuation perspective, two sleeper issues and one known unknown.  

The first sleeper issue is “CIPR” which stands for “comprehensive income product for retirement”.  The Government intends to alter policy and tax settings to permit such products to be developed and issued by super funds.  Possibly CIPR will be become the “MyPension” companion product to the MySuper product.  It seems these products will be a hybrid of an account-income stream with a deferred annuity.  SMSFs will not be required or permitted to issue these products.  While it is very early days in relation to CIPRs two important constraints will apply to these products: first there is no such thing as a free lunch and secondly, these products will operate in a zero sum environment.

The second sleeper issue is the rationalisation of legacy life insurance and managed investment products.  The Government will remove approval hurdles and alter tax settings to permit legacy (old fashioned, sub-scale) investment products to be converted into current products thereby offering cost savings to the product issuers and scale advantages.

The known unknown is the comment by the Review to consider aligning the earnings tax rate between accumulation and retirement phases and to better integrate super and age pension systems.  The Review made no recommendation but left this issue for the Tax Review.