SMSF Association Media Release
The SMSF Association welcomes the announcement in the Federal Government’s Mid-Year Economic and Fiscal Outlook (MYEFO) that will allow the partial commutation of certain non-commutable pensions.
SMSF Association Deputy CEO / Director of Policy & Education Peter Burgess says: “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 Transfer Balance Cap (TBC) is a welcomed reform.
“Certainly, it will be appreciated by the minority of SMSFs who have been affected as we don’t believe the TBC rules work effectively in situations where a lifetime or life expectancy complying pension is converted to a market-linked income stream and the commencement value of the market-linked pension exceeds the member’s TBC.”
The MYEFO paper said: “The measure will enable retirees with these products who have been unable to commute amounts exceeding their TBC to undertake the necessary partial commutation. It also ensures appropriate tax outcomes for these retirees given their prior inability to comply with the TBC rules.”
The SMSF Association also believes there are inequities in the need to retrospectively apply a new commutation formula to market-linked income streams that have 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.
“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.”
In July last year the SMSF Association put forward a solution to this issue by proposing the creation of a new TBC debit to write off any unintended pension balance excess that may arise due to the introduction of this 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.”