A new legislative instrument was tabled in parliament last week to rectify the misalignment between the Social Security Act and the five-year amnesty announced in December last year allowing SMSF members to commute their existing legacy pensions.
To this end, the Social Security (Waiver of Debts – Legacy Product Conversions) Specification 2025 has been introduced under subsection 1237AB(1) of the Social Security Act and allows relief for any debts that may arise when individuals decide to take advantage of the five-year amnesty.
The possibility of debts arising from the legacy pension measure stem from the fact these income streams will have changed their original characteristic of being non-commutable, which allowed them to qualify for an asset test exemption.
As a result, regardless of whether an individual has decided to maintain their legacy pension or commute it, they will have triggered section 1223 of the Social Security Act and consequently incurred a debt under this provision.
“Under the Social Security Act, the secretary of the Department of Social Services (not the minister) can decide to waive the commonwealth’s right to recover debts arising under the [act]. However, to be able to do this, the minister must first introduce a legislative instrument that specifies the class of debts the secretary is allowed to waive, [so this is what has happened],” Colonial First State head of technical Craig Day explained.
“However, the act also confirms that the secretary can’t make any decision to waive any of those specified debts until after the 15-day disallowance period for legislative instruments has expired. Once that happens, the secretary can then decide to waive the relevant debts and can specify the date from which the waiver will apply, which can be before the date they made the decision.
“Therefore, assuming the instrument that specifies the relevant debts survives the 15-day disallowance period, which will expire during the next parliament, the secretary could then decide to waive any debts that arise due to the legacy pension commutation rule changes from 7 December 2024.”
Smarter SMSF education and technical manager Tim Miller pointed out there are some specific details of the legislative measure to note, such as the fact the debt waiver is not automatic and is subject to a decision by the secretary or delegate, the decision is reviewable and the specification does not impose compliance obligations or create new offences, making its purpose entirely beneficial.
“The Social Security (Waiver of Debts – Legacy Product Conversions) Specification 2025 is a pragmatic move to align social security outcomes with superannuation reforms. It reflects an understanding that retirees shouldn’t be penalised for following Treasury-sanctioned pathways out of legacy products,” Miller said in a blog post.
“As the industry continues to work through the legacy product conversion window, which runs until 6 December 2029, this specification adds a vital layer of certainty.”
