A leading actuarial firm has revealed the current legislation to address the management of legacy pensions is operating in a most effective manner for its clients.
Accurium head of education Mark Ellem recognised the specific system change, implemented on 5 April 2022, allowing a legacy pension to be converted to a new market-linked pension while eliminating the possibility of the action creating a transfer balance account excess is achieving significant results.
“We have been doing a number of these conversion reports in relation to clients who have old legacy pensions, particularly large ones, and a lot of them are finding, with the way that the rules work, that they end up being able to completely dismantle their old legacy pension, allowing them to get the money out,” Ellem told delegates at the Accurium SMSF Compliance Day 2023 in Sydney last week.
“They can get the money out either completely out of the fund or let it sit in the accumulation account.
“Now the advantage of having the money in the accumulation account is if they wake up one morning and they’re not feeling too healthy, then they’ve got the ability to pull money out of the fund and so when they do pass away, it won’t be treated as a superannuation death benefit subject to tax.
“Instead, if they have no tax dependants, it will be treated as their own personal asset which will be dealt with under their will.”
He took the opportunity to remind practitioners income stream strategies involving partial commutations to create more transfer balance cap space for clients are not applicable to existing market-linked pensions.
“So if you drew down over the minimum pension amount, which last year was 45 per cent of the calculated amount and this financial year 90 per cent of the calculated amount, if you drew down 110 per cent, could you treat that as a partial commutation?” he said.
“No, because a market-linked pension is non-commutable.”