Act now on enacted legacy pension changes

legacy pension budget

Legacy pension holders should not wait for proposed budget measures that may not eventuate, but take advantage of recent changes to exit those products.

SMSF members looking to commute legacy pensions should not wait for proposed budget measures to come through, but take advantage of a recently enacted change and convert them to a market-linked pension (MLP) without creating excess concessional contributions.

DBA Lawyers senior associate Bryce Figot said plans first released by the government in December 2020 and confirmed in the 2021 federal budget to allow legacy pension holders to commute those pensions back into the SMSF accumulation account still hinged on the upcoming election and may never eventuate.

“The stuff that came from the budget is separate to what was in the regulations that were made in early April and it might never happen,” Figot said during a recent webinar.

“It was only an announcement and we have no reason to believe it won’t happen, but there’s a lot of practical clues it might not happen given there is an election happening and if we have a change of government, who knows what might happen.”

Instead, he pointed to a work-around if the budget measures do not eventuate, being the changes that took effect from 5 April that allow legacy pension holders to convert those pensions into a new MLP without the excess transfer balance being treated as a concessional contribution.

“The budget changes suggest that people who had commuted and restarted a pension [that was first started before 20 September 2007] would be ineligible, but we informally understand that even people who had done that would still be eligible,” he said.

“Presumably the two-year window mentioned in the changes will be from 1 July 2022 to 2024, but given we don’t even have an exposure draft, maybe it’s not going to happen.

“So, what will happen if a pensioner dies before the window opens? All the more reason to take advantage of the regulations which have been made.

“I would be a lot more comfortable if we act now under the law that exists and then later on if the budget announcements are enacted, use them on market-linked pensions.

“If those changes are ultimately enacted, it could be handy to deal with the MLPs leftover after using the changes implemented by the regulations from 5 April, which hopefully everyone is now familiar with.”

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