Draft regulations to resolve market-linked pension headaches
Draft regulations recently released by the government, if implemented, could alleviate some of the issues resulting from the transfer balance cap for those with market-linked pensions, according to one lawyer.
Cooper Grace Ward Lawyers Scott Hay-Bartlem says the new amendment proposed in Treasury Laws Amendment (Fair and Sustainable Superannuation) Regulations 2017 could provide SMSF trustees with non-commutable income stream, with the ability to commute these income streams.
“Also, if someone has both market-linked and account-based pensions and together they result in an excess transfer balance, under this proposed change, the market-linked pension could be commuted back to accumulation phase to remove even an expected excess, leaving the account-based pension in place,” Mr Hay-Bartlem told SMSF Adviser.
He said market-linked pensions generally cannot be commuted, which is currently causing issues for trustees who are above the $1.6 million transfer balance limit.
“The problem is that people started these market-linked pensions back in the old RBL days and now we really can’t get rid of them,” Mr Hay-Bartlem said.
“So the draft regulations would allow you to commute a market-linked pension, which you otherwise couldn’t commute to get rid of the excess.”
Mr Hay-Bartlem noted, however, that under these changes, more is required than simply commuting the pension.
“The amendments allow the pension terms to allow a commutation, so first the pension terms must be amended to allow for the commutation. This could provide some issues, depending on the wording of the trust deed and pension terms,” he said.