A long-awaited measure to allow superannuation members drawing legacy pensions to exit these more restrictive income streams has become law.
On 7 December 2024, Treasury Laws Amendment (Legacy Retirement Product Commutations and Reserves) Regulations 2024 came into effect.
After announcing these measures in in the 2021-22 Budget, practitioners, advisors and clients alike have been waiting on Government to enact the ‘amnesty’ procedure to ‘get out’ of these historical non-commutable income streams.
These Regulations now allow superannuation fund members, who have otherwise non-commutable pensions a five-year period in which they may fully commute that pension into accumulation phase within a self managed superannuation fund (SMSF).
Such pensions include:
- lifetime defined benefit pensions
- life-expectancy defined benefit pensions
- market-linked pensions (which are widely referred to as ‘legacy pensions’ in the SMSF sector).
Prior to the introduction of the new regulations, if a member with a legacy pension sought to restructure their restrictive pension accounts, the result would often leave an unallocated reserve in the SMSF, which could not be allocated to the member without being assessed against the members contributions caps.
This five-year window will permit members to have more flexible access to their superannuation benefits, allowing them to retain funds in accumulation phase, commence an account-based pension, or withdraw as a lump sum (subject to the rules of their fund). Importantly, the flexible access applies only to living members, and not reserves created as a result of the death of a legacy pensioner.
Whether a member chooses to obtain the benefit of the regulations or retain their legacy pension is a decision that should be carefully considered with advice from a licenced financial advisor. These changes (if the five-year window is utilised) may mean that a change to the strategy of death benefits as part of an SMSF member’s estate plan needs to be considered.
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Disclaimer: This article provides general information only and is not intended to constitute legal advice. You should seek legal advice regarding the application of the law to you or your organisation.