SMSF Association Media Release
The SMSF Association’s long-running campaign to allow individuals to exit certain legacy retirement products has taken a giant step forward with the Government’s decision to release draft regulations for discussion on implementing this measure.
Association CEO Peter Burgess says the issuing of these draft regulations is a “win” for the SMSF sector, offering an escape hatch for superannuants who have been trapped in non-commutable, legacy pensions for years.
“The Government first gave notice in the 2021-22 Budget that it would put some legacy retirement products on the agenda, so it’s pleasing that this important step forward has been made.”
The draft regulations will:
- Enable individuals to exit legacy retirement products for up to five years.
- Allow more flexible pathways to make allocations from a reserve.
They will apply to legacy lifetime, life expectancy and market-linked superannuation income stream products that started before 20 September 2007. They will also apply to legacy pensions that began because of a conversion of an earlier legacy product that started before that date.
“Relaxing the commutation restrictions will enable members to exit legacy products and use the resulting capital to either start an account-based income stream, leave it in an accumulation interest account, or withdraw from superannuation entirely,” he says.
“It is also pleasing to see the government acknowledge the reserve issues already faced by SMSFs due to legacy pensions that have ended, with the proposal to allow the allocation of these non-pension reserves being a welcome step in addressing these challenges.”
Burgess adds that the Association’s campaign to propose an amnesty to convert legacy pensions to account-based pensions and address associated reserve issues, began in 2019.
“To ensure that this policy was a priority, it remained a key feature of our policy platform, including after the 2021 Budget announcement.
“We have taken every opportunity to raise this issue with Government and Treasury, so it’s extremely gratifying to see this exposure draft released for consultation yesterday.”
“It’s encouraging to see this measure under consideration, and we strongly advocate for its implementation before the proposed introduction of the Division 296 tax provisions.”
“It makes good sense given the proposed introduction of Division 296 is likely to involve significant complexity and cost for those who remain in these pensions,” he says.
The Association will be lodging a submission to seek clarification on several tax matters as well as seeking supporting social security amendments to ensure that members taking advantage of this measure do not have any benefits clawed back.