The SMSF Association has welcomed the Government’s announcement to amend legacy pensions as retirees will be treated equitably.
The Federal Government’s Mid-Year Economic and Fiscal Outlook (MYEFO) announced that it would allow the partial commutation of certain non-commutable pensions.
The MYEFO said this would allow retirees with these products who had been unable to commute amounts exceeding their transfer balance cap (TBC) to undertake the necessary partial commutation. This would ensure appropriate tax outcomes for these retirees as they were unable to comply with the TBC rules prior to the change.
SMSF Association deputy chief executive and director of policy and education, Peter Burgess, said: “We have long advocated the modernisation of these pensions – better known as legacy pensions – so the Government’s decision to amend the law to ensure that retirees who have commuted and restarted these pensions are treated equitably under the TBC is a welcomed reform”.
The SMSF Association also believed there were inequities when it came to retrospectively applying a new commutation formula to market-linked incomes streams that had been commuted and restarted on or after 1 July, 2017.
“We are concerned that the need to re-report a commutation figure using this new formula could give rise to excess pension balances with excess transfer balance earnings accruing from the original date of the commutation,” Burgess said.
“This may be the case because the revised commutation figure using the new legislated formula could give rise to a substantially lower TBC debit than originally reported using guidance material available at the time. It’s also not clear how re-reporting could occur if the SMSF has subsequently been wound up.”
The association has proposed a creation of a new TBC debit to write off any unintended pension balance excess that may arise due to the introduction of the new commutation formula.
“The amendments announced in the MYEFO paper appear consistent with this write-off TBC debit approach and we look forward to consulting on the draft legislation and making further improvements to the legacy pension system,” Burgess said.