New legacy pension regulations, applying from 7 December 2024, are now in force. They affect lifetime complying, life expectancy and market-linked pensions, reserve accounts and, by extension, flexi pensions.
Essentially the new rules provide elegant solutions for two problem scenarios.
Legacy reserves, distributed to remaining members, will now be counted against non-concessional rather than concessional caps. If the member is eligible to make non-concessional contributions, including the ability to utilise the 3 year bring forward rule, any amount distributed will utilise their contribution eligibility in the usual way. If, due to age, they are not eligible to make non-concessional contributions they will still be able to use the $120k yearly cap however if the original pension recipient, or reversionary beneficiary, is the recipient of the distributed amount it is not subject to any cap at all.
Existing legacy pensions can be commuted in full. Any reserve will pass to the member’s accumulation account without penalty. The transfer balance cap debit will depend on the type of pension commuted. For example, a lifetime complying pension will reduce the member’s transfer balance account balance by the same amount that it added to the account on 1 July 2017. A market linked pension is subject to a more complex formula which is generally its 1 July 2017 TBA credit less subsequent pensions drawn. Accurium Actuarial will prepare a legacy pension restructure report (single pension) for $3,300 including GST. We can assist our Alliance Partners with this process. Alternatively, you may contact Accurium direct (Mark Ellem – mellem@accurium.com.au).
It must be noted that the issue of Centrelink asset test exemptions has not yet be finalised.
Technically, legacy pension commutations will lose their asset test exemption and could incur a five-year claw back of social security entitlements if commuted under the new Regulations, but the Assistant Treasurer has stated in a media release:
As announced by the former Government in the 2021–22 Budget, social security treatment will not be preserved for those who choose to transition out of their legacy retirement product. However, no debts will arise from the re‑assessment of these products’ asset values for the period before conversion.
Meaning that Centrelink benefits will not be assessed retrospectively but they will be tested from the date of legacy pension commutation and could result in a loss of benefits.
Lastly, the Regulations still need to pass a ‘disallowance period’ of 15 sitting days in Parliament. As such there is a possibility the Regulations could cease in the event of a successful notice of motion to disallow during that period, however, it is unlikely that a motion to disallow will occur. In the unlikely scenario of a successful motion to dismiss, the law would cease to apply only from that time and not retrospectively, so it is prudent to act now.
