DBA Lawyers is pleased to announce our new suite of legacy pension commutation documents. Pursuant to the amnesty provisions, these documents allow for a member to fully commute the following types of legacy pensions within the prescribed 5-year amnesty period (7 December 2024 – 6 December 2029):
- a complying lifetime pension (CLP) (ie, a pension provided under reg 1.06(2) of the SISR);
- a life expectancy pension (LEP) (ie, a pension provided under reg 1.06(7) of the SISR); and
- a market linked pension (MLP) (ie, a pension provided under reg 1.06(8) of the SISR).
History and overview
Prior to the introduction of the new regulations (see Treasury Laws Amendment (Legacy Retirement Product Commutations and Reserves) Regulations 2024 (Cth)), SMSF members receiving certain legacy pensions (including capped defined benefit income streams (CDBISs)) could only commute these pensions under very limited circumstances, eg, where:
- the superannuation lump sum resulting from the commutation was applied to commence a new non-CDBIS MLP; or
- where the commutation was necessary to comply with an ATO commutation authority.
Although certain measures for legacy pension exit arrangements were previously announced back in the 11 May 2021 Federal Budget, these prior announcements were broadly abandoned following the change of government after the 2022 Australian Federal Election.
Accordingly, the current amnesty provisions were welcome relief, particularly given the broader scope of the concessions relating to making allocations from a reserve.
Service information
Our suite of commutation documents outlined below comply with relevant law and best practice for the commutation of a legacy pension under the amnesty provisions:
- Covering letter
- Member request
- Trustee resolutions
- Letter from Trustee to Member
- Confirming Trustee Resolutions (for subsequent use if the figures have changed from those reflected in the initial trustee resolutions)
Our fees to prepare the above suite of legacy pension commutation documents is $1,250 + GST. This fee includes lawyer review of the current governing rules of the SMSF to determine whether the trustee is empowered to commute the relevant pension. Further information on our suite of legacy pension commutation documents can be found here.
Naturally, where an existing SMSF deed does not contain sufficient powers for a commutation, a deed update will sometimes be required prior to the member commuting their legacy pension. If requested, DBA Lawyers can assist with updating the governing rules of an SMSF with our SMSF deed update documents, information on which can be found here.
The commuted amount can be rolled back into accumulation phase or cashed outside the superannuation environment as a lump sum payment. Subject to transfer balance cap (TBC) and other considerations (discussed below), SMSF members may also wish to commence a new account-based pension following the commutation of their legacy pension. For further information on our new pension commencement documentation, see here.
Social security implications and the new debit waiver
When considering the commutation of a legacy pension, members should also be aware of the recent legislative change that may impact their social security entitlements. The new Social Security (Waiver of Debts – Legacy Product Conversions) Specification 2025 provides a significant update for members holding asset test exempt (ATE) pensions. Prior to this change, commuting these pensions (or even varying their terms) could trigger a retrospective assessment, potentially resulting in a significant debt owed to the Commonwealth for overpaid age pension benefits.
The new specification allows for applicable debts to be waived by the Secretary of the Department of Social Services (DSS) for members who commute their legacy pensions in accordance with the new superannuation laws. This includes both 100% and 50% ATE pensions, which were previously at risk of creating a debt when commuted. A waiver can apply retroactively, meaning that members who commute their pension during the current 5-year amnesty period (7 December 2024 – 6 December 2029) may not face any penalties or liabilities under the ‘look-back’ provisions. Importantly, while this change can reduce the risk of financial penalties, it does mean that members will lose their asset test exemption going forward, which could impact their eligibility for certain social security benefits.
Note the Secretary of DSS cannot provide debt waivers until the relevant disallowance period for the instrument has passed which is after 15 sitting days of the Federal Parliament, which is delayed owing to the 2025 Federal election. Accordingly, those eligible for social security entitlements should obtain advice prior to taking any action.
For members who are currently receiving an age pension or other benefits, it’s crucial to weigh the benefits of commuting a legacy pension against the potential loss of the asset test exemption. While the amnesty provides a unique opportunity to adjust superannuation entitlements without incurring a retrospective debt, members should carefully consider the long-term impacts, including on their social security status, before proceeding with a commutation.
Additional considerations
We recommend that a member contemplating exiting a legacy pension under the amnesty considers the need to obtain additional advice and input where relevant, including in relation to the following:
- financial advice from a licensed financial planner under the Corporations Act 2001 (Cth);
- tax advice on the commutation, including TBC advice;
- advice on the social security implications of the commutation (ie, in respect of Centrelink or the Department of Veteran Affairs), or the Commonwealth Seniors Health Card, including with regard to the recent debit waiver instrument;
- actuarial input, where relevant, on the commutation value of the pension;
- superannuation law advice on the succession planning implications of commuting a legacy pension and other associated changes to their super entitlements;
- advice on whether prior historical debits and credits to their transfer balance account associated with the pension have been correctly recorded; and
- any other items to consider including making sure the right documents are completed.
Naturally, DBA lawyers would be pleased to assist with providing advice if so requested.
In particular, we note that a member contemplating the commutation of a CDBIS MLP should consider the need to obtain expert advice prior to undertaking any action due to the complex debit rules that apply. In board terms, due to the special debit rules for MLPs, TBC space can be severely eroded and it may not be possible for the member to transfer any additional amounts into retirement phase after commuting. Further, in some cases (eg, for CDBIS MLPs with large account balances) the commutation may result in an excess transfer balance position for the member which may require careful management, such as a notice being obtained from the Commissioner for a non-commutable excess transfer balance. Accordingly, expert advice should be obtained if there is any doubt whatsoever.
Conclusion
As you will note from the above outline, there are a range of factors that need to be considered before commuting a legacy pension. We aim to ensure you obtain the right documents and provide practical and strategic legal advice to assist you and/or your clients in making an informed decision.
For more information and related articles
- Legacy pension commutation
- New ATO guidance on restructured market linked pensions
- New pension (ABP or TRIS)
- SMSF Deed Update
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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional.
By Fraser Stead, Lawyer ([email protected]) and William Fettes, Director, ([email protected]), DBA Lawyers.
DBA LAWYERS
11 April 2025
