The barriers for SMSF members to exit legacy pensions have been removed with a five-year amnesty on their tax-free commutation starting on 7 December after the government used a legislative instrument to bring them into effect.
The Treasury Laws Amendment (Legacy Retirement Product Commutations and Reserves) Regulations 2024 were approved by Governor‑General Sam Mostyn on 5 December after Financial Services Minister Stephen Jones presented them as a legislative instrument that altered existing superannuation and tax regulations.
As such, the instrument was registered on 6 December and the commencement of the regulations took place the following day.
Under the new regulations, which were first announced in draft form on 17 September, legacy pension holders will have a five-year period in which 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.
Any other reserve allocations will count towards an individual’s non-concessional contributions instead of their concessional contributions.
The approval of the instrument removes a concern the pension changes would not come into effect as they had been linked to the bill to introduce the Division 296 tax on superannuation earnings, which is currently before the Senate and may not pass before the government calls an election in 2025.
While the changes are now in place, they may still be wound back as the rules of parliament require any legislative instrument be tabled in both houses within six sitting days of it being registered and within 15 days of tabling any member of those houses can table a motion to disallow the instrument.
Given parliament will not sit again until 4 February 2025, the 15 sitting days would expire on 14 April at the earliest.
