In a statement released to the ASX, Challenger revealed DSS has informed the company that it plans to “reverse” its means test assessment for Challenger’s Care Annuity.
The DSS stated to Challenger that the Care Annuity “has been incorrectly assessed in the past resulting in incorrect social security payments” – reversing the decision made in March 2012 after the product’s release.
The decision is expected to reduce the age pension to most of the DSS clients who are also investors in the Care Annuity, said Challenger.
The daily aged care fees payable by the clients (who have an average age of 87) are also likely to increase, said the statement.
“On behalf of its affected Care Annuity clients, Challenger will pursue legal avenues to protect the interests of these investors, should this prove necessary,” said the statement.
The company has suspended sales of its Care Annuity product “while a resolution to this issue is reached”.
As a result of the change, Challenger is “not in a position” to confirm its 2014/2015 net book growth guidance, said the statement.
“In terms of the potential financial impact on Challenger, it’s difficult to predict the effect of the DSS decision on Life’s net book growth,” said the statement.
Challenger’s Care Annuity sales in 2013/2014 were $279 million.
Commenting on the decision, Challenger chief executive Brian Benari said the Care Annuity is “central to the security and quality of life of many aged care residents”.
“The department’s unfair backflip targets some of our most vulnerable elderly and we will be taking action to protect them,” Mr Benari said.
