The federal government has announced plans to allow people to exit legacy pensions over a five-year period by relaxing commutation restrictions and allocating reserves to SMSF members where those funds supported an income stream to that member.
The proposed changes have been released for consultation and are contained within the draft Treasury Laws Amendment (Self-managed superannuation funds – legacy retirement product conversions and reserves) Regulations 2024 published today by Treasury.
The explanatory statement to the regulations published by Treasury and Financial Services Minister Stephen Jones stated “the regulations relax commutation restrictions so that legacy products can be exited with the resulting capital used to commence an account‑based income stream, left in an accumulation interest account or withdrawn from superannuation entirely”.
“The commutation must occur in full within a designated five-year grace period beginning on the day the regulations commence,” it said.
“The regulations also provide more flexible pathways to make allocations from a reserve by providing that where a reserve supported an income stream that is ceased, and the reserve is allocated to the former recipient of that income stream, it will be exempt from both contribution caps.”
The statement said other reserve allocations will now count towards an individual’s non-concessional contributions rather than their concessional contributions.
The changes will apply to legacy lifetime, life expectancy and market-linked income stream products that commenced before 20 September 2007 or started as a result of a conversion of an earlier legacy product that began prior to that date.
Treasury noted the regulations expanded on changes made in the 2021/22 budget that allowed some individuals to exit certain legacy retirement products under specific conditions and would be introduced as a legislative instrument and then commence on the day of royal assent.
Jones said via the regulations the government “was helping more Australians retire with dignity by taking further steps to improve the superannuation system” as the legacy retirement products were no longer fit‑for‑purpose.
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