Nicholas Ali

Neo Super, Australia’s leading independent SMSF service provider, welcomes the passing of the Treasury Laws Amendment (Legacy Retirement Product Commutations and Reserves) Regulations 2024.

The legislation, enacted on 7 December 2024, introduces long-awaited flexibility for self-managed superannuation fund (SMSF) members dealing with legacy pensions. These changes allow non-commutable legacy pensions to be ceased, enabling members to roll capital into accumulation accounts, commence new income streams, or withdraw lump sums.

Neo Super’s Head of SMSF Technical Services, Nicholas Ali said, “This legislation represents a turning point for SMSF members trapped in outdated pension arrangements.”

“It not only eases administrative burdens but also provides more equitable options to manage reserves and align with modern superannuation strategies.”

This development addresses a long-standing challenge for SMSF members burdened by inflexible income stream products, such as Market-Linked Income Streams (MLIS) and lifetime pensions, that no longer align with modern superannuation needs.

Key benefits to the change include:

• Exit legacy retirement products within a five-year window.
• Allocate reserves from ceased pensions with greater flexibility, including exemptions from contribution caps when allocations meet certain conditions.
• Move from outdated income streams to more suitable and effective arrangements.

While the reforms are broadly positive, Neo Super advises SMSF members to approach the changes with careful planning:

• Allocations from general reserves must be monitored to avoid breaching non-concessional contribution caps.
• Members should consider the impact on government benefits, as commutation may make previously exempt assets assessable under Centrelink’s Assets Test.
• The five-year grace period requires timely action, especially for funds with complex or illiquid assets.

As an innovative end-to-end SMSF service provider, Neo Super is uniquely positioned to assist trustees and intermediaries in navigating these changes.  From compliance and documentation services to tailored advice, Neo Super ensures trustees and advisors can achieve optimal outcomes under the new framework.

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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.

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Nicholas Ali

The fate of the controversial Division 296 Bill, which imposes an additional 15 per cent tax on the earnings of superannuation balances exceeding $3 million, is now with the Senate after the House of Representatives passed the legislation yesterday.

Neo Super Director of SMSF Technical Services Nicholas Ali says this is bad policy in many respects, citing the taxing of unrealised capital gains (especially for farms and small businesses), the refusal to index the cap, its potential impact on venture capital or for addressing an issue that’s been resolved – large SMSF balances – by the introduction of caps in 2016.

“But the unprecedented tax on unrealised capital gains heads the list.

“This sets an alarming precedent in Australia’s taxation policy. This legislation could have far-reaching consequences, not just for the superannuation sector but for other tax policies more broadly. It’s critical that SMSF trustees fully understand the implications as the bill heads to the Senate.”

Amendments proposed by MPs Kylea Tink and Luke Howarth—such as indexing the $3 million cap and replacing the taxation of unrealised gains with an earnings-based tax—were defeated.

The Albanese Government’s majority in the lower house ensured its passage, but its fate in the Senate is far more problematic, with some crossbenchers (as well as the Coalition) having expressed their opposition.

The Government has reiterated that less than 0.5% of fund members, or about 80,000 Australians, would be affected by the new tax. But the refusal to entertain its indexation means that number will quickly grow.

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