Regulations to allow SMSF members to commute a market-linked pension (MLP) to another pension without creating an excess transfer balance amount still have gaps that need to be filled and are still open for debate, according to the SMSF Association.
Association technical manager Mary Simmons said the passing of the regulations on 5 April would impact all SMSF members who had a complying life expectancy pension or MLP after 1 July 2017 and wanted to commute it to start a new MLP.
In a column on the association’s website, Simmons noted that prior to the registration of the new regulations “there was no ability to commute any excess amount from a post-1 July 2017 restructured MLP and individuals found themselves in perpetual excess [of the transfer balance amount]. These regulations now address this unintended consequence”.
She added the new regulations were already in operation and were being applied retrospectively to any complying life expectancy pension or MLP that was commuted on or after 1 July 2017 to fund the start of a new MLP, but their implementation was not locked down.
“These new regulations are in force, but they are still within their disallowable period, which means any member of parliament can still give notice of a motion to disallow the regulations. If these regulations are disallowed, which appears unlikely, we will need to revisit these issues yet again,” she said.
According to information on the federal parliament website, a disallowance motion can be made by any member of the House of Representatives within 15 sitting days of the legislative instrument that gives effect to regulations being tabled and if that motion is not resolved or withdrawn within 15 sitting days, the instrument is disallowed and ceases to have an effect.
Additionally, an instrument with the ‘same substance’ cannot be made again within six months after being disallowed with the approval of the house that disallowed it.
Addressing the gaps in the regulations, Simmons noted they did not address the treatment of any resulting reserves on the restructure of a capped defined benefit income stream.
“Industry simply must remain optimistic that last year’s budget announcements to allow members to exit legacy pensions sees the light of day and that it extends to any surplus reserves that were once supporting a capped defined benefit income stream in place on 1 July 2017,” she said.