Legacy pension amnesty period – Greater Social Security clarity provided

The commutation of a ‘legacy’ pension that was previously asset test exempt for Centrelink purposes will result in the failing of the Centrelink provisions, leading to a loss of asset test exemption and the potential for a clawback of any overpayments over the previous 5 years.

With the disallowance period for the specification to address the debt waiver concern set to expire by the end of the month, a further determination to cover another technicality was registered this week – addressing a technicality that applies even where a Social Security recipient has not, nor has any intention to, commute their legacy pension!

The ‘technicality’
Under the Social Security Act 1991, the mere option to commute an otherwise asset test exempt ‘legacy’ pension, introduced by the advent of the legacy pension amnesty period, runs contrary to the fund rules which applied to the income stream when it commenced.

As such, from 7 December 2024, when the 5-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.

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.

During our initial consultations with Treasury, in relation to the legacy pension amnesty, and in response to concerns raised by members of the SMSF Association, this loss of asset-test exemption was acknowledged as an unintended consequence, leading to an inappropriate outcome where affected social security recipients, who chose not to commute their legacy product, would nonetheless lose asset-test exemption for their legacy pension.

The solution
Earlier this week, the Minister for Social Services also released Social Security (Asset-test Exempt Income Stream Guidelines) Determination 2025 – which took effect yesterday (i.e. 30 September).

Among other things, this determination provides guidelines which broadly enable the Secretary 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.

This ensures the Secretary has the ability to determine that certain legacy pensions continue to be asset-test exempt where the commencement of the Treasury Amendment Regulations caused those income streams to inadvertently lose their asset-test exemption from 7 December 2024.

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.