SMSF members planning to commute a legacy pension will have to wait until later this year to be certain an asset test exemption will apply as it is not active yet despite being announced in March.
Heffron SMSF technical and education services director Leigh Mansell said the amnesty that allows legacy pensions to be commuted required a legislative instrument to be released by the Financial Services Minister, while a separate instrument to ensure the assets test was not applied had to be released by the Social Services Minister.
The first instrument was registered on 7 December last year and the second was registered on 26 March, both with a 15-day disallowance period, however, only the first instrument is currently operational.
“What we were waiting for was a debt waiver to come out for when you commute a legacy pension that is either 100 per cent or 50 per cent exempt from the assets test,” Mansell said during a recent technical update.
“When that happens Centrelink will go back five years and reassess if the pension had age pension entitlements, that is, as if the pension had been assets tested rather than assets test exempt, and if they work out they have overpaid some age pension, then a debt would be waived.
“The debt waiver instrument has come out, but has not come into effect, so it’s not operational yet.
“What we’re waiting for to kick it into gear is another 15 sitting days of both the House of Representatives and the Senate to pass and once that has taken place, then the secretary of social services will be in a position to exercise discretion to waive debts.
“So be careful if you’re dealing with Centrelink age pension clients who want to commute an asset test exempt pension.”
In contrast, while the 15-day disallowance period for the legislative instrument to allow commutations has not passed, it allows legacy pension holders to act until such time as a disallowance motion is moved in parliament.
Mansell noted the debt waiver was likely to commence and be backdated to 7 December, thus aligning the effective start dates of both regulations.
“There’s been nothing to suggest that when the debt waiver is operational, it won’t take effect from 7 December, but be careful if you’re advising clients because we’ve got law, but it’s not in effect yet.”
