The SMSF Association has warned practitioners not to be fooled by relief included in the legacy pension amnesty with regard to the allocation of reserves after the original income stream recipient has passed away.
In December last year, the federal government announced a five-year amnesty period allowing SMSF members to exit any existing lifetime, life-expectancy and market-linked pension.
Contained in the measure is the ability for any reserves supporting any legacy pension to be extinguished without having allocations applied against any of the recipient’s contributions caps.
However, if the member who was benefiting from the legacy pension passes away and residual associated reserves exist, the allocation of those reserves will count towards the recipient’s non-concessional contributions caps.
The regulations do though provide for allocations with no concessional cap consequences for reserve recipients on the death of the original pensioner in certain circumstances, but SMSF Association chief executive Peter Burgess stressed accountants and advisers need to be cautious if they believe these rules apply to their clients.
“For those who have been following these regulations closely, don’t be fooled into thinking that when clients die there is a cap-free pathway [for the allocation of reserves in these circumstances],” Burgess told delegates at the SMSF Association National Conference 2025 held recently in Melbourne.
“It took some of the best minds in this industry to try and unravel what those subsections actually mean. Now they only come into play when you’ve got clients in a lifetime pension who have died in a guaranteed period.
“Well, I’ve never come across a lifetime pension that had a guarantee period [of five, 10 or 20 years], but apparently there are some out there. Now given these pensions have been going for so long, they’re probably all outside their guarantee period anyway.
“So it’s very unlikely this subsection will come into play … [that means in the main] if clients [receiving a legacy pension] have died, we can allocate [the remaining reserves], but it will count against the [recipient’s] non-concessional cap. It won’t be cap-free.”
