The federal government has announced it will amend superannuation legislation to find a permanent solution with regard to the transfer balance account treatment for individuals who have commuted a market-linked pension and commenced a new pension arrangement in its place.
Speaking at the Financial Services Council BT Political Series breakfast in Sydney today, Assistant Treasurer Stuart Robert said: “We’re moving to fix an error in the way market-linked pensions are valued under the transfer balance cap when they are commuted or rolled over, resulting in a nil debit.
“A nil debit is an issue because it doesn’t accurately reflect the individual’s transfer [balance] cap and may lead to an individual inadvertently breaching the transfer [balance] cap.
“Whilst the ATO has issued a bunch of guidance to self-managed super funds and their approach to compliance, the government is committed to finding a more permanent way to correct this error.”
SMSF specialist service provider SuperConcepts cautiously welcomed the move, noting industry consultation was crucial before the change to the law is made.
“It will be important that the fix to the legislation aligns with the original intent as this has been the approach taken by advisers and accountants when utilising the guidance issued by the ATO,” SuperConcepts SMSF technical services executive manager Mark Ellem said.
“What would be a concern is where new legislation changes how the value of the commutation is determined from how it was explained in the explanatory memorandum (EM).
“Any proposed legislative change should be done with consultation from industry to ensure the outcome is not different from the original intent, as outlined in the EM. We do not want legislation with an outcome not aligning with intent for a second time.”
Robert added the government would also be looking to amend the law to maintain the treatment of market-linked pensions under the transfer balance cap rules where they have been rolled over as a result of successive fund transfer or merger and acquisition activity.
“Market-linked pensions rolled over or commenced after 1 July last year are not treated as capped defined benefit income streams under the transfer balance cap,” he said.
“This measure will ensure that new market-linked pensions that commence because of a successive fund rollover or M&A activity in some way will continue to be treated as a capped defined benefit under that transfer balance cap.
“Superannuants should not be disadvantaged because of choices not made by them, but made by their fund.”
