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.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.