A senior industry educator has confirmed the extinguishing of a life-expectancy income stream under the five-year legacy pension amnesty announced late last year cannot be executed in a single action.
“Keep in mind with the life-expectancy pension [commutation] is basically a two-step process. That’s because with a life-expectancy pension there is a maximum commutable amount,” Accurium head of SMSF education Mark Ellem noted.
“So despite how much capital within the fund is supporting that legacy pension, it’s a defined benefit pension, when you exit out under this [amnesty] measure, the amount of capital that can come out of that pension, and effectively allocated to [the] member’s accumulation account, is subject to a maximum [level].
“However, any capital above that maximum commutable amount that is left in a reserve can subsequently be allocated back to the member without any [contributions] cap consequences.”
Ellem also took the opportunity to remind practitioners certain pensions are not eligible to be commuted under the five-year legacy pension amnesty.
“Lifetime complying pensions paid from a defined benefit fund [are not eligible for this measure and] not relevant for an SMSF because, while an SMSF may be paying a defined benefit pension, the SMSF is not a defined benefit fund. It is a defined contribution fund, also referred to as an accumulation fund,” he told attendees of a recent Accurium technical webinar.
He pointed out flexi-pensions, unlike lifetime complying income streams, cannot be commuted under the newly granted amnesty either, even though they can operate within an SMSF, but indicated this would not cause a major issue.
“A flexi-pension was either a lifetime pension or a life-expectancy pension, but had the ability to be commuted,” he noted.
“That type of pension [could be] in your SMSF client base, and while not eligible [to be ceased] under the exit measure, that’s not a concern because effectively there was already an out under the existing law.
“They didn’t need the exit measure because they were [already] commutable.”
He acknowledged stopping a flexi-pension would also involve a two-step process, much like that applying to a life-expectancy income stream.
Pension management will be discussed in greater detail at SMSF Professionals Day 2025, co-hosted by selfmanagedsuper and Accurium. Please visit https://www.accurium.com.au/smsf-professionals-day/ to register.
