The ATO has released its first formal guidance in regards to the rules around the commutation of legacy pensions and the changes to reserve allocations, opting to release them online, but the SMSF Association has noted more work needs to be done on them.
The regulator released the guidance regarding commutations on its website today, using Quick Code (QC) 105078, and reiterated that since 7 December 2024, lifetime annuities and pensions, life expectancy annuities and pensions, and market-linked annuities and pensions may all now be commuted under the five-year amnesty, which ends in 2029.
The new information noted the regulation introduced in December 2024 allows the commutation of these products, but it does not change how they currently operate.
“The regulation relaxes a restriction on what fund or product rules can allow: it does not change fund or product rules themselves. Fund or product rules may need to be changed by the fund or provider to allow commutation before a recipient can commute without the fund breaching those rules,” it said.
The guidance for changes to reserve allocations, released using QC 105079, noted the shift in contribution caps under which a reserve will be counted and that the changes were not limited to reserves associated with legacy pension products.
The release of the guidance was hailed by the SMSF Association, which pointed out its release was the result of the professional body’s advocacy work and direct involvement during industry consultation earlier this year, but added more detail was required in specific areas.
“We welcome the ATO’s decision to publish this guidance online, allowing for a more timely release than waiting for a formal product,” the association told members.
“That said, our initial impression is that while the guidance is a welcome first step, it falls short in some key areas.
“We had hoped to see more examples – particularly in relation to market-linked pensions and reserve allocations – to further assist professionals navigate the changes.
“Additionally, the material provides limited detail on more complex scenarios involving transfer balance caps, tax components and death of a member, which are critical considerations for many SMSF clients.
“We’ll continue to engage with the ATO to provide as much clarity as possible to support the SMSF sector.”
