The government has released a further determination to prevent legacy pensions not commuted during the five-year amnesty period from losing their asset test exemption and avoiding an unintended consequence of the changes introduced in December last year.
Under the amnesty the commutation of a legacy pension that was asset test exempt for Centrelink purposes would lose this exemption and face a clawback of any overpayments made from the pension over the previous five years.
To avoid this for pensions that will be commuted the government issued Social Security (Waiver of Debts – Legacy Product Conversions) Specification 2025 in March of this year to allow them to retain their asset test exempt status but this did not apply to pensions that will not be commuted.
SMSF Association technical manager Fabian Bussoletti said the issue was flagged with Treasury during consultations around the legacy pension amnesty and recognised as an unintended consequence that would create an inappropriate outcome for social security recipients who chose not to commute a legacy product.
“From 7 December 2024, when the five-year legacy pension amnesty period commenced, regardless of whether a Social Security recipient chooses to exercise this option or not, these legacy pensions effectively ceased to meet the requirements for asset-test exemption,” Busoletti noted.
“Technically this means that, even where an individual has not elected to commute their legacy pension under the amnesty, the income stream ceased to be asset-test exempt from the moment the commutation option became available on 7 December 2024.”
He pointed out the government had released a new instrument, Social Security (Asset-test Exempt Income Stream Guidelines) Determination 2025, to address the issue which took effect on 30 September, however it is unclear if its implementation will be back dated to 7 December 2024.
“This determination provides guidelines which broadly enable the Secretary [of the Department of Social Services] to determine that a legacy pension which was an asset-test exempt income stream immediately prior to the commencement of the legacy pension amnesty period and, where the only reason the pension is no longer an asset-test exempt income stream is due to the ability for it to be commuted under the amnesty period, is still an asset-test exempt income stream for the purposes of the Act,” Bussoletti explained.
“Thankfully, any resulting debts from this loss of asset-test exemption may be waived pursuant to the Social Security (Waiver of Debts – Legacy Product Conversions) Specification 2025.
“Combined with the comfort that, from late October, pending the expiry of the disallowance period, debts arising from the commutation of legacy pensions will be waived, the Social Security impacts of the legacy pension amnesty are looking clearer.”
