There are calls for the Government to include an amnesty for legacy superannuation pensions in the Federal Budget.
The SMSF Association used its pre-Budget submission to call for an amnesty for legacy pensions, which includes life-time pensions, market-linked pensions and life expectancy pensions.
The Association said that, given the introduction of the Transfer Balance Cap (TBC), it is “sensible” to grant an amnesty to allow SMSF trustees to convert these pensions to account-based pensions.
“A superannuation ‘clean up’ is desirable for the Government, regulators and the superannuation industry for the purposes of simplicity and efficiency,” said the SMSF Association.
“Legacy pensions now exist in an environment where they have little relevance and one where many SMSF trustees currently do not fully comprehend their operation and the impact the TBC has on them. This is because they have not been able to be established in over a decade. They are difficult to administer, explain and advise on.”
“Their relevance in the superannuation industry is further diminished by the significant regulatory changes to superannuation laws. The introduction of the TBC results in some of the most complex laws and outcomes in financial services for these pensions. There are many legacy pensions where the costs of administering them is substantial given the relatively low balances.”
Even where some legacy pension have been commuted, this has created large reserves amounts that can’t be allocated efficiently – due to rules around allocations from reserves and associated ATO guidance.
The SMSFA is calling for a transition period where trustees could commute legacy pensions and recommence them as account based pensions.
“A transition period would remove the restriction and penalties around the commutations of these pensions. This would include allocating the reserve accounts that are consistent with these pensions to capital supporting an account based pension and resolving current uncertainty of how reserves interact with the TBC.”
The Chartered Accountants Australia & New Zealand (CAANZ) have made a similar recommendation in their pre-Budget submission.
“The Government should work with the superannuation industry to provide an opportunity for individuals to cease their defined benefit and other restricted pensions, such as market linked, flexi and term allocated pensions, so they can transfer the net proceeds to account based pensions,” said CAANZ.