Moves by the Federal Government to set up a working group to look at legacy life products and increase funding for mental health support services have been welcomed by the industry.

Treasurer Josh Frydenberg announced the measures when he presented the Federal Budget last week.

About $2.5 million will be provided over two years to establish an industry working group to develop and consult on the design of a streamlined mechanism to facilitate the transfer of policyholders from closed life insurance products and managed investment scheme products to new ones.

An additional $2.3 billion will be invested over four years into mental health and suicide prevention programs.

The Financial Services Council (FSC) says it is pleased to see the Government’s commitment to tackling the vexed issue of legacy products across the financial sector.

It says the policy settings need to be carefully calibrated to ensure any solutions will be beneficial for consumers.

“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,” FSC CEO Sally Loane said.

“The ability to move out of legacy pension products, many of which are outdated and expensive, is a welcome move.

“However, the tax and social security settings will be the key factor [for] consumers and their financial advisers in determining whether to take up the scheme.”

The FSC says about 1.6 million Australians are holding outdated life insurance products.

“The ability to move into a modern product without any tax penalties will be a great outcome for consumers,” Ms Loane said.

Consultancy EY says the current adverse tax outcomes and cumbersome process has been a barrier to moving many holders of interests in legacy products into more competitive products.

“This consultation is well overdue particularly with the impending implementation of the product design and distribution regime which puts additional responsibility for consumer outcomes on product issuers and distributors,” it says.

The Financial Planning Association (FPA) says the legacy product announcement means consumers will be allowed to move into a more contemporary retirement product.

FPA CEO Dante De Gori also welcomed the confirmation from the Government that it will wind up the Financial Adviser Standards and Ethics Authority by December 31 as planned.

Life insurer TAL has welcomed the planned increase in mental heath spending and focus on rationalising legacy life products.

“Moving customers from legacy products to new products with contemporary definitions and features will be of lasting benefit to customers,” Group CEO and MD Brett Clark said.

“We strongly support the Government’s plan to develop a streamlined mechanism to transfer life insurance customers from old legacy products to products that better suit our customers’ current circumstances and reflect contemporary community expectations.”

He says the extra funding for mental health support services will bring “significant benefit” to the community.

“It is critical to better enable community access to preventative and support services for mental health conditions,” Mr Clark said.