Sladen Snippet – Proposed law to allow conversion of legacy pensions and reserves

At long last proposed regulations have been released for consultation that would permit the conversion of legacy pensions and reserves over a 5 year period. As a nice added bonus, the regulations will also better allow allocations from non-pension reserves.

The proposed regulations will allow the commutation of pre-2007 pensions to be converted into account based pensions, or back into accumulation and/or to be paid out as lump sums. The measure will cover market linked pensions, life expectancy pensions and lifetime pensions, as well as reserves that support such pensions. This will be a welcome relief for members “stuck” in such pensions. However, at this stage, the measure will only apply to such pensions in self managed superannuation funds (SMSFs).

In addition, for non-pension reserves, allocations will now be subject to the non-concessional contributions cap (rather than the concessional cap) better allowing such reserves to be wound down. Further, pension reserves will be able to be allocated to a beneficiary when the pension member dies.

There are a few things that will hopefully be changed when the regulations are finalised, including:

  • Having an unlimited period (rather than the proposed 5 years)

  • Extending the measure to non-SMSFs

  • Allowing partial commutation for legacy pensions (proposed to only allow full commutations)

  • Grandfathering the aged pension asset test exemptions

  • Allowing full allocation of non-pension reserves

Phil Broderick
Principal
T +61 3 9611 0163  l M +61 419 512 801  
E pbroderick@sladen.com.au    

Terence Wong
Senior Associate
T +61 3 9611 0112 l M +61 0458 846 022
E twong@sladen.com.au