The federal government has confirmed legacy pensions that hold an asset test exemption will not generate a social security debt when commuted under new regulations that came into effect in early December.
Financial Services Minister Stephen Jones confirmed the ‘debt waiver’ in the first formal comments from the government in regards to changes to older income streams, including that asset test exemptions will not carry over to new pensions.
“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,” Jones said.
“However, no debts will arise from the reassessment of these products’ asset values for the period before conversion.”
Jones’s comments refer to the fact some legacy pensions were given asset test exempt status where the capital value of the pension was not counted for the purposes of the Centrelink asset test.
Under the new regulations, the commutation of those pensions would remove that status and allow Centrelink to reassess any entitlements for the age pension for the last five years, potentially creating a debt.
While the government has not outlined how it will prevent the creation of social security debts, it is possible it will alter the operation of the Social Security Act via changes to its supporting regulations to ensure legacy pensions are excluded from the asset test assessment.
In describing the broad parameters of the changes, Jones also recommended those commuting a legacy pension should seek financial advice.
“Following consultation with stakeholders, the regulations that have commenced will remove barriers to allow individuals to exit these products at any stage over the next five years and help retirees access capital more easily that would otherwise be locked in the system,” he said.
“Individuals who want to exit their legacy retirement product should consider seeking financial advice before taking action.”
