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