Call for DB super funds to be given more time on legislation

The Federal Government has been reminded that its efforts to address the Federal Court’s so-called Douglas decision affects more defined benefit (DB) superannuation funds than the original military superannuation benefits scheme.

A submission to the Senate Economics Legislation Committee makes clear that Government legislation aimed at addressing the Federal Court decision also impacts other DB pensions paid on permanent incapacity from some non-military schemes and that recipients may not be aware of this fact.

The warning has come from the Association of Superannuation Funds of Australia (ASFA) which pointed out that superannuation funds would not necessarily be positioned to help affected members because they do not know their personal tax circumstances.

“This limits their ability to prepare pensions for the impact,” the submission said.

The ASFA submission said this justified allowing superannuation funds an appropriate transition period.

“There are broadly two categories of funds affected by the amendments proposed in Schedule 9:

1. Some funds may not have changed their systems or otherwise addressed the issues raised in Douglas – that is, they may have continued to treat the relevant pensions as income streams for tax purposes. This may, for example, be as a result of obtaining a private ruling from the Australian Taxation Office (ATO).
2. Other funds may have changed their systems or incorporated other workarounds to address the issues in Douglas – that is, they may have ceased to treat the relevant pensions as income streams and instead treated them as a series of lump sums for tax purposes.

“It is important that the legislation and any supporting instruments appropriately accommodate both these groups of affected funds and, critically, the recipients of the DB pensions they pay. Both groups of funds require certainty that, following the passage of the legislation and any associated legislative instruments, there will be no need to go back and change the treatment and documentation for benefits already paid.”

The submission said both groups of funds would require an appropriate transition period and recommended that the planned transition period be extended for a further financial year.