COMPLIANCE
The two-year amnesty dilemma
The federal government’s decision to apply a two-year moratorium allowing superannuants with legacy pensions to deal with the adverse issues stemming from these income streams was welcomed by the sector. But with no indication of when the two-year period will commence, some individuals in this situation may not be able wait. Mark Ellem explores the implications for them and the potential remedies available.
MARK ELLEM is head of education at Accurium.
The number of SMSFs with a member being paid an old legacy pension continues to fall and with the 2021 budget announcement of a two-year period for members with these old pension to exit, there may not be many, if any, left in five years. However, is the strategy for SMSFs with these pensions as simple as waiting for the start of the two-year exit period? Given the fact the life expectancy tables are not that kind for such members, putting these individuals aside until the start of a two-year exit period to deal with those pensions may turn out to be quite costly.
What are legacy pensions? The pensions in focus are those that will be eligible for the proposed two-year exit measure being as we understand it:
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• Superannuation Industry (Supervision) (SIS) regulation 1.06(2) lifetime complying pensions, • SIS regulation 1.06(7) lifetime expectancy pensions, also known as a fixed-term pension, and • SIS regulation 1.06(8) market-linked pensions (MLP), also known as term-allocated pensions. The first two pensions are defined benefit pensions (DBP), whereas an MLP is not.
The issue with legacy pensions All these pensions cannot be commuted, except in limited circumstances. That is, generally an SMSF member cannot effect a transfer of the pension capital back to their accumulation account, unlike an accountbased pension. One of the biggest issues with DBPs is dealing with
