SMSF deed considerations for legacy pension commutations
The new legacy pension commutation regulations introduce requirements that effectively allow what were previously ‘non-commutable’ income streams within the SIS Regulations to be commuted. As a result, it is important to understand the fund’s deed history to determine what changes may be required for the commutation of a Market Linked Pension (‘MLP’), Lifetime Complying Pension or Life Expectancy Complying Pension to be completed.
We have created below a timeline of changes within the superannuation laws that would have seen SMSF deeds updated.
| Time period | Details |
| Pre-1999 | Defined benefit pension (‘DBP’) rules were introduced for SMSFs in 1999, with SMSF deeds at this time predominantly drafted with ‘generic’ powers to pay a pension (as the most common form of pension was an allocated pension). |
| Early 2000s | The introduction of DBPs within SMSFs, saw the need for more specific rules or clauses to enable a pension to qualify for asset-test exemption with Centrelink (to access age pension) or for Pension RBL purposes. |
| September 2004 | Market Linked Pensions were introduced into the superannuation laws that provided an accounts-based approach to drawing an income stream, whilst obtaining asset test exemption for the age pension, along with accessing the higher pension RBL. Deeds needed to be updated to reflect powers to pay an MLP under SISR 1.06(8). |
| End 2005 | New DBPs were prohibited from commencing in SMSFs from 1/1/2006, resulting in only MLPs be eligible to commence where the member was seeking asset test exemption or the higher Pension RBL. |
| July 2007 | The Simpler Super reforms from 1 July 2017 abolished RBLs and introduced a new form of super income stream – an Account Based Pension (‘ABP’). At this time, most SMSFs undertook deed updates to comply with the new laws – this required a ‘carry through’ of the existing rules that applied for DBPs & MLPs that continued to be paid. The super reforms also saw a simplification of pension powers within many SMSF deeds due to the changes in allowable pensions from a SMSF. |
| September 2007 | Changes to the MLP laws occurred at this time that ceased the 50% ATE for age pension purposes. |
| July 2017 | Significant super reforms were introduced from 1 July 2017 that introduced a transfer balance cap for individuals. For these legacy retirement products, they were assessed under a special value for transfer balance cap purposes, along with a defined benefit pension income cap for some pensions requiring individuals to include part of their pension as assessable income. A large number of funds were required to update SMSF deeds to accommodate the new reforms. |
| February 2022 | Changes to the transfer balance cap laws, provided for certain excess transfer balance cap amounts to be commuted. |
| December 2024 | The Federal Government introduces new regulations to allow for the full commutation of these legacy retirement products within a SMSF, including MLPs and DBPs. A 5-year period from 7 December 2024 applies, with any ATE lost as part of the commutation. Funds with these types of pensions will need to review the fund’s deed history to ensure that the pension is authorised to be commuted, other a deed update will be required. |
Smarter SMSF deed
Specific changes have been made to the Smarter SMSF deed from February 2024 to allow for the commutation of these legacy retirement products within a SMSF.
To find out more information about how to upgrade a fund’s deed prior to commutation, contact us on 1300 95 94 76 or email support@smartersmsf.com.