DSS Waiver - Asset-Test Exempt Legacy Pension Commutations

Summary: Social Security (Waiver of Debts – Legacy Product Conversions) Specification 2025

Legislative Authority

Made under subsection 1237AB(1) of the Social Security Act 1991, the Specification is a beneficial instrument that authorises the Secretary of the Department of Social Services to waive certain classes of social security debts that arise as a result of the Treasury Laws Amendment (Legacy Retirement Product Commutations and Reserves) Regulations 2024

Purpose

The Waiver Specification 2025 ensures that individuals affected by the Treasury’s 2024 legacy pension reforms are not financially disadvantaged by the resulting social security consequences. Specifically, it allows the Secretary to waive debts that arise when:

A person commutes a previously non-commutable income stream; or
A legacy product loses its asset-test exempt status because of changes to fund rules allowing commutation

This specification is designed to support the intent of the Treasury amendments—to enable people to voluntarily exit legacy income stream products without being penalised under the social security means test.

Background and Policy Context

Under the Social Security Act 1991, certain superannuation income streams can be treated as “asset-test exempt” (under sections 9A, 9B, and 9BA), provided they are non-commutable except in very limited cases.

The Treasury Laws Amendment (Legacy Retirement Product Commutations and Reserves) Regulations 2024 temporarily relaxed these restrictions between 7 December 2024 and 6 December 2029 to allow retirees to commute and restructure legacy pensions (e.g. lifetime, life expectancy, and market-linked pensions commenced before 20 September 2007).

However, this created two unintended issues under the Social Security Act:

Commuting a product triggered a debt under section 1223A, because the person’s income stream no longer satisfied the “non-commutable” condition.
Not commuting the product could still trigger a debt under section 1223, because the mere amendment of fund rules (to allow commutation) technically breached the exemption conditions (paras 9A(2)(h), 9B(2)(h), 9BA(2)(f))

Without corrective action, these provisions would unfairly generate debts for retirees—either for acting (by commuting) or for not acting (by retaining their product).

The Waiver Specification was introduced to eliminate this unintended outcome.

Scope and Operation

Classes of Debts Covered

The Specification identifies two classes of debts that may be waived by the Secretary:

Class of Debt	Relevant Provision	Circumstance Covered
1. Debts arising from commutation	Section 1223A	Where a person commutes a previously asset-test exempt income stream under the new Treasury Regulations (RSA reg 1.08AA; SIS regs 1.05AA, 1.06C). These commutations would normally cause a debt because they breach the original fund rules
2. Debts arising from loss of exemption without commutation	Section 1223	Where a person did not commute their income stream, but the product ceased to be asset-test exempt due to rule changes enabling commutation. These recipients received higher payments than permitted, creating overpayment debts

Both classes apply only if the debt did not arise from false or misleading conduct by the recipient.

Effect of the Specification

The Specification empowers the Secretary to:

Waive these debts under section 1237AB(1) of the Act, and
Apply the waiver retrospectively or prospectively, as debts may arise before or after the Specification commences

It effectively removes the social security penalty that would otherwise arise purely due to the Treasury’s regulatory change, aligning social security treatment with the policy intent of flexibility for legacy pension holders.

Commencement

The Specification commences the day after the disallowance period ends (under section 42 of the Legislation Act 2003).
It does not commence if disallowed by Parliament

Relationship to Other Instruments

Instrument	Relationship	Purpose
Treasury Laws Amendment (Legacy Retirement Product Commutations and Reserves) Regulations 2024	Triggering instrument	Created the ability (and unintended debts) when legacy pensions became commutable.
Social Security (Asset-test Exempt Income Stream Guidelines) Determination 2025	Companion instrument	Provides forward-looking guidelines to re-classify these products as asset-test exempt.
Waiver Specification 2025 (this instrument)	Transitional corrective measure	Provides retrospective debt relief to ensure affected individuals are not financially penalised.

Together, the Determination and the Waiver Specification form a two-stage DSS solution:

Stage 1 (Waiver) – Clean up debts already created by the Treasury Regulations.
Stage 2 (Determination) – Reinstate ongoing exemption status for legacy products to prevent future debts.

Summary of Key Points

Made under s1237AB(1) of the Social Security Act 1991.
Waives debts arising from commutation or loss of asset-test exemption due to Treasury’s 2024 legacy pension reforms.
Applies to income streams affected by RSA reg 1.08AA, SIS regs 1.05AA and 1.06C.
Two classes of debts—commutation-related (s1223A) and exemption-loss (s1223).
Only applies to honest recipients (no false or misleading conduct).
Commences after disallowance period; beneficial and non-regulatory.
Works in tandem with the Asset-test Exempt Income Stream Guidelines Determination 2025 to ensure fairness for holders of legacy income streams.
Promotes social security integrity and fairness while respecting the policy intent of Treasury’s legacy pension reforms.

✅ In summary

The Waiver Specification 2025 provides the retrospective safety net for retirees impacted by the 2024 legacy product reforms. It ensures that no one incurs a social security debt merely because the Treasury permitted their fund to allow commutation — or because they chose to exercise that new right. It operates hand-in-hand with the Asset-test Exempt Income Stream Guidelines Determination 2025, which provides the forward-looking exemption framework for those same products.