The SMSF Association has welcomed the release of a debt waiver instrument that will play a key role in allowing fund members to commute legacy pensions, but has noted additional work needs to be done to ensure those income streams remain asset test exempt.
In a note to members, the association said the registration of the Social Security (Waiver of Debts – Legacy Product Conversions) Specification 2025 was “necessary and fair” and “ensures retirees can navigate the amnesty without the unintended consequence of a Centrelink debt”.
The instrument, registered on 26 March, will allow Centrelink debts to be waived when someone fully commutes a legacy asset test exempt pension under the amnesty rules that apply from 7 December 2024, which could trigger a debt under social security law, and also where even the ability to commute would cause the pension to lose its asset test exempt status.
However, the association noted there was still a problem in how far the debt waiver went when compared to the amnesty instrument released last year.
“While this [debt waiver] instrument provides relief by waiving debts where retirees receive more than they are entitled to, it does not appear to resolve a separate issue that, due to the Treasury Amendment Regulations commencing on 7 December 2024, legacy pensions may no longer satisfy the statutory requirements for asset test exemption under the Social Security Act,” the industry body pointed out.
“Should this indeed be the case, the secretary [of the Department of Social Security] could consider taking further action to reclassify legacy pensions as asset test exempt and overcome any unintended consequences.”
It added it expected this latest step to allow the commutation of legacy pensions would not be blocked by parliament, but the timetable for its approval had been stretched out by the election.
“Although the instrument has been made, it does not take legal effect until the disallowance period [of 15 sitting days] ends. With the federal election now called, we are currently in limbo until the new parliament convenes and the sitting calendar is confirmed,” it said.
“That said, we do not expect the instrument to be disallowed, given the strong and clearly stated policy intent to protect affected pensioners and ensure the success of the legacy pension amnesty.”
