Date posted: 12/05/2021 2 min read

Australian Federal Budget 2021-22 - SMSF legacy pensions can be dismantled

The Australian government has finally listened to industry to permit legacy pensions to be dismantled

In Brief

  • These measures help simplify the retirement system by enabling people to transition to more flexible and contemporary products

The Federal Government will permit market-linked, life-expectancy and lifetime products to be pulled apart for a two-year period after enabling legislation is enacted.

“The measure will allow a fund member to access all the capital in the pension including any associated reserves,” says Tony Negline, Superannuation Leader at Chartered Accountants Australia and New Zealand. 

“The reserves will be taxed as an assessable contribution in the super fund when the pension ceases, but presumably not count as a concessional contribution,” he said.

Any accessed capital will lose any grandfathered social security treatment, such as assets test exemption, and will most likely be deemed.

The government says the measures help simplify the retirement system by providing consumers a temporary option to transition to more flexible and contemporary products, promoting efficiency and reducing costs in the superannuation system.

The measure will not apply to flex pensions or lifetime pensions in large APRA funds or public sector defined benefit pensions. It is unclear if it will apply to pensions in small APRA funds.

The measure will apply from the first financial year after the legislation receives Royal Assent.

“Industry has long asked the government to make this change so it should be congratulated for finally acting on this ongoing problem and industry lobbying,” said Negline.

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