Peter Burgess has told SMSF Adviser that it was an “early Christmas present” that the Treasury Laws Amendment (Legacy Retirement Product Commutations and Reserves) Regulations 2024 were approved by Governor‑General Sam Mostyn on 5 December.
The decision came following the presentation by Assistant Treasurer Stephen Jones of the regulations as a legislative instrument that altered existing superannuation and tax regulations.
“These newly registered regulations provide much-needed reform to retirees trapped in non-commutable legacy pensions, including legacy lifetime, life expectancy and market-linked income stream products,” Burgess said.
“Considering the age of these superannuants, they now have a genuine opportunity to restructure their retirement savings effectively. It was a surprise to us. We weren’t expecting to see these regulations registered as we had previously been told they were entangled with other tax policies, particularly the Division 296 tax.”
The new regulations mean that legacy pension holders will have five years to commute a lifetime, life expectancy and market-linked income stream that commenced before 20 September 2007.
They may choose to move these pension amounts to cash, to their accumulation account or start a new account-based pension.
The limitations on the allocations of pension reserves have also been lifted so those that supported an income stream that had ceased and were still allocated to the pension recipient will be exempt from the concessional and non-concessional contribution caps.
“We welcome these changes and praise the government in making this decision,” Burgess said.
“Our driving concern was that these types of pensions would not have had enough time to restructure their affairs before Div 296 was intended to start in July 2025. Although the government has made it clear that Div 296 is still policy, it is paving the way for Div 296 to give members with these types of pension enough time to organise their affairs.”
If the regulations had not been passed now, he added, those with legacy pensions would have been waiting until at least February next year when Parliament returns for any certainty.
“The earliest the Div 296 could be passed is in February 2025, which would have allowed people with legacy pensions only four months to restructure their affairs before the proposed start date of the new legislation on 1 July 2025,” Burgess said.
“One of our biggest concerns was that we would not see these regulations passed until Div 296 was passed. Now, people have some certainty and they can commute their pensions or use other flexible pathways that are not tied to Div 296.”
However, Burgess added that while these regulations are a welcomed development, there is a lingering sense that some opportunities to further enhance the regulatory framework surrounding this measure may have been missed.
“In our submission on the draft regulations, we noted it was common practice for legacy pensions to cease rather than be commuted on the death of the primary beneficiary or on the completion of the payment term,” he said.
“We encouraged Treasury to consider the inclusion of an additional cap-free pathway to allow a pension reserve to be exited from the system where the pension recipient(s) has died. Unfortunately, this was not heeded so it appears an opportunity has been lost to quickly and efficiently eliminate these potentially large reserves.”
He added the association also flagged the potential social security ramifications of the regulatory changes.
“Notwithstanding industry’s recommendations for Treasury to work with the Department of Social Services to ensure these concerns were addressed, at this stage we’re not aware of any social security legislative instruments, or other supporting materials, that serve to alleviate any of these concerns,” he said.
“While we understand a legislative instrument to remove the social security ramifications is likely, without further clarification or developments on this front, concerns still linger that social security-sensitive members may be negatively impacted by this recent development.”
