Proposed changes to allow SMSF members to exit legacy pensions are a win for the sector after five years of calling for the government to create an exit pathway for funds trapped in these vehicles, the SMSF Association has stated.
Association chief executive Peter Burgess said yesterday’s release of draft regulations to allow people to exit legacy lifetime, life expectancy and market-linked superannuation income stream products was a “giant step forward” in resolving an issue first raised in 2019.
The draft regulations will allow individuals to exit legacy retirement products for up to five years without any cap restrictions and make allocations from a reserve to a member where applicable.
“Relaxing the commutation restrictions will enable members to exit legacy products and use the resulting capital to either start an account-based income stream, leave it in an accumulation interest account or withdraw from superannuation entirely,” Burgess said.
“The government first gave notice in the 2021/22 budget that it would put some legacy retirement products on the agenda, so it’s pleasing that this important step forward has been made.”
He added the association was also pleased the government has addressed the issue of reserves faced by SMSFs with legacy pensions and that it dealt with those that had once supported an income stream to a member, as well as any other forms of reserve that may exist within a fund.
“We have taken every opportunity to raise this issue with government and Treasury, so it’s extremely gratifying to see this exposure draft released for consultation yesterday,” he said.
“It’s encouraging to see this measure under consideration and we strongly advocate for its implementation before the proposed introduction of the Division 296 tax provisions,” he added, noting the proposed tax would add more complexity and cost for those still in legacy pensions.
The association will lodge a submission seeking clarification on tax matters and social security amendments to ensure those taking advantage of the proposed changes do not have any benefits clawed back.
