An SMSF specialist has suggested a measure to extinguish legacy pensions held inside a fund should have been included in the federal budget due to the severe adverse treatment these arrangements will be given under the proposed Division 296 tax rules, even if the recipients are over the age of 65.
Accurium head of education Mark Ellem told attendees at SMSF Professionals Day 2024 in Sydney today: “Normally if you’re over 65 you can withdraw your super because age 65 is a condition of release. The easy one, the nicest one. When you wake on your 65th birthday – happy birthday, you’ve got full access to your super, sorry, unless you’ve got one of those old legacy pensions because they’re not commutable.
“So SMSF members in this situation don’t have the choice, if they’re affected by the Division 296 tax, of pulling that money out of their fund and invest it elsewhere.”
Ellem pointed out the situation is also only marginally better should people with a legacy pension look to close their SMSF down, providing a further reason for the government to allow the scrapping of these income streams.
“Also, if individuals want to wind up their SMSF, they have to roll that flexi-pension to a retail provider. Now if you’ve got a market-linked pension, there is a choice of one. There is only one retail provider out there that will offer a retail market-linked pension or a term-allocated pension as they call it,” he told delegates at the event co-hosted by selfmanagedsuper and Accurium.
“I don’t think the choice of one is a choice really.”
According to Ellem, the situation is even worse for SMSF members with an old defined benefit pension.
“If you’ve got an old defined benefit pension that is 100 per cent asset test exempt and you want to keep it asset test exempt, and you don’t want to keep the SMSF anymore and you want to roll it over, the retail options are less. There are zero options,” he said.
“So we thought a measure to address these circumstances would have been announced. It wasn’t, but we hold out hope that maybe it will be sometime in the future before the Division 296 tax comes in.”
