Draft regulations to modernise legacy pensions and provide flexibility for SMSF members

Nicholas Ali

SMSF administrator Neo Super has welcomed the proposed changes to legacy pensions, saying they are a game changer for SMSF members holding these products.

Neo Super Director of Technical Services Nicholas Ali says: “They offer much-needed flexibility, allowing members to commute their income streams in a way that suits their financial goals while reducing the administrative burden on trustees.

“For years, many of these legacy products have constrained members and driven up costs unnecessarily. This reform will not only simplify the management of these pensions but also provide much fairer and more equitable outcomes for members and their families.

“We identify this is a significant and welcome development, particularly as many legacy pensions have become inflexible, no longer suited to the needs of members, and often expensive to manage.’

The draft Treasury regulations regarding legacy pensions aims to modernise the treatment of non-commutable income streams, such as market-linked pensions, life expectancy and lifetime pensions.

Ali says: “The changes will provide individuals the opportunity to exit these arrangements more easily and efficiently over a five-year period. Additionally, reserves linked to these pensions can now be allocated to a recipient’s member balance without impacting contribution caps, providing further flexibility.

“Reserves in SMSFs created for other purposes can also be allocated to a member, though these allocations will count against their non-concessional caps rather than concessional ones. Importantly, members can use the bring-forward non-concessional contributions provisions, subject to Total Super Balance (TSB) rules.”

The proposed amendments, however, only apply to SMSF members, reinforcing the focus on this superannuation vehicle to provide tailored and strategic retirement solutions.

“This reform could provide considerable relief to many SMSF members, marking a step forward in making the superannuation system more adaptable and user-friendly, he says.