For legacy lifetime, life expectancy and market-linked superannuation income stream products that generally commenced prior to 20 September 2007, the shackles have finally been released but care is still required.
Regulations that came into effect on 7 December 2024 allow thousands of self managed super fund (SMSF) members to exit legacy income streams at any stage until 7 December 2029.
Before the introduction of the amending regulations, these legacy products – also known as non-commutable products – couldn’t be converted to a lump sum, effectively trapping pensioners in their SMSF.
Legacy products were originally introduced to offer retirees a guaranteed income for life or for a set term. This was good in some ways, but very restrictive strategically as the products could not respond to changing individual circumstances, market conditions and other legislative reforms.
During the five-year grace period that the amending regulations offer, retirees can exit these income streams without the previous heavy penalties and with the options of fully withdrawing their funds or moving them into a new income stream or an accumulation account.
There is further good news: the new reserve rules last indefinitely – not just for five years. However, it may be prudent to not to jump in yet if a person’s legacy pension was established for social security purposes. A new legislative instrument will ensure these pensions receive the proper treatment under the social security law.
If a person has already made some reserve allocations in 2024–2025 under the “old” rules, both the old and new rules will actually apply this year depending on when they made the allocation. But it’s important not to assume everything allocated in 2024–2025 is covered under the new rules! Note also that SMSF members with a legacy pension may need to give the amending regulations consideration ahead of the proposed Division 296 rules from 1 July 2025. This is because Division 296 may count certain reserve allocations as part of the member’s superannuation earnings under the proposed additional 15% tax for
