Government registers regulations to fix legacy pension headache

The instrument allows the commutation of certain income streams for the purposes of meeting the superannuation transfer balance cap.

SMSF Association deputy chief executive Peter Burgess explained that for clients with non-commutable pensions, there were some situations where the client had stopped and restarted a market-linked income stream and where it exceeded the transfer balance cap, there was nothing the client could do due to some of the limitations with these types of pensions.

“These regulations which have just been released will allow that excess to be commuted and transferred back to the accumulation phase where it can be cashed out so it’s a good change,” said Mr Burgess.

The government first released draft regulations for this measure in December last year. It also mentioned that it would be making the regulations in the budget last week.

Earlier this year, Heffron managing director Meg Heffron explained that the regulations would be extremely beneficial for those who have commuted these types of pensions, with some people having had excess for years.

Ms Heffron explained that a key feature of defined benefit pensions and market-linked pensions is that they can’t be commuted and paid out as a lump sum, rolled back to the accumulation phase or converted to a simpler and more flexible account-based pension except in very limited circumstances.

“Generally, these pensions can only be commuted if the balance is used to start a new legacy pension. To most people that sounds very much like a ‘frying pan’ and ‘fire’ situation – leaving one complex and restrictive pension only to start another that’s also complex and restrictive,” she noted.

Consequently, Ms Heffron said the SMSF industry was still hoping to see some further progress with the government’s other proposed measure for legacy pensions, the two-exit amnesty measure, which would allow SMSF members to exit these pensions.