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Relaxed commutation rules for legacy retirement products

Changes from 7 December 2024 relax commutation restrictions for certain legacy retirement income stream products.

Last updated 25 June 2025

Changes to commutation restrictions

From 7 December 2024, the Treasury Laws Amendment (Legacy Retirement Product Commutations and Reserves) Regulations 2024External Link (the Regulation) temporarily relaxes commutation restrictions for certain retirement income stream products (known as legacy retirement products).

Before 7 December 2024, providers of certain legacy retirement products had to ensure that those products could not be commuted under the relevant fund rules, contract, or terms and conditions of the product (the fund or product rules), except in limited circumstances.

The Regulation relaxes this restriction so that the relevant fund or product rules can also allow the products to be fully commuted within the 5-year period beginning on 7 December 2024 and ending on 6 December 2029.

What can be commuted

The affected products that can be commuted are:

  • lifetime annuities and pensions, being products that meet the standards in subregulations 1.05(2) or 1.06(2) of the Superannuation Industry (Supervision) Regulations 1994 (SISR), if the fund that purchases or provides consideration for the benefit (in the case of annuities) or provides the benefit (in the case of pensions)
    • is not a defined benefit fund, or
    • is a self-managed superannuation fund (SMSF), or
    • was, when the benefit commenced to be paid and at all earlier times, a small APRA fund
  • life expectancy annuities and pensions, being products that meet the standards in subregulations 1.05(9) or 1.06(7) of the SISR
  • market-linked annuities and pensions, being products that meet the standards in subregulations 1.05(10) or 1.06(8) of the SISR, or subregulation 1.07(3A) of the Retirement Savings Accounts Regulations 1997.

While the affected products are described as legacy retirement products, and many commenced before 20 September 2007, there is no requirement in the Regulation that the affected products must have commenced before a particular date.

The Regulation relaxes a restriction on what fund or product rules can allow: it does not change fund or product rules themselves. Fund or product rules may need to be changed by the fund or provider to allow commutation before a recipient can commute without the fund breaching those rules.

 

Example 1: lifetime pension in an SMSF

Rebecca starts receiving a lifetime pension from her SMSF on 1 July 2003. That pension is provided under fund rules that meet the standards in subregulation 1.06(2) of the SISR.

On 1 January 2025, the trustee amends the fund rules to allow full commutation within the 5-year period beginning on 7 December 2024 of lifetime pensions it provides.

On 1 March 2025, Rebecca fully commutes her lifetime pension. The commutation complies with the standards in the Regulation.

End of example

Example 2: market-linked pension in an SMSF

Isaac starts receiving a lifetime pension from his SMSF on 1 July 2003. On 1 July 2020, that lifetime pension is fully commuted and the resulting lump sum is used to directly purchase a market-linked pension from the same fund in circumstances that do not breach subregulation 1.06(2) of the SISR. The market-linked pension is provided under fund rules that meet the standards in subregulation 1.06(8) and regulation 1.07C of the SISR.

On 1 January 2025, the trustee amends the fund rules to allow full commutation within the 5-year period beginning on 7 December 2024 of market-linked pensions it provides. After that amendment, Isaac fully commutes his market-linked pension. The commutation complies with the standards in the Regulation.

End of example

What happens when a legacy retirement product is commuted

If an affected legacy retirement product is commuted, in most cases the resulting entitlement can be dealt with by the former recipient in the same way as an entitlement from the commutation of most other superannuation income streams. Generally, the entitlement must be allocated to the member's account and then can be:

  • subject to preservation rules and payment standards
    • used to commence another income stream (if the individual has sufficient transfer balance cap space), or
    • paid as a lump sum
  • retained in the fund, in 'accumulation phase'
  • dealt with in a combination of the above ways.

In some cases, there may be other restrictions on how the entitlement can be dealt with. For example, if the legacy retirement product is a death benefit income stream, the entitlement may need to be paid from the fund to the recipient and not retained in the fund to comply with fund rules and requirements of the SISR.

Possible tax and social security consequences

Both the commutation of an affected legacy retirement product and any subsequent dealings with the resulting entitlement will also have taxation consequences for the former recipient. For example:

  • the commutation of the legacy retirement product will result in a transfer balance account debit for the former recipient, and
  • the commencement of another superannuation income stream will result in a transfer balance account credit for that individual.

Many affected legacy retirement products are treated differently to account-based superannuation income streams for transfer balance cap purposes. For example, special valuation methods for determining transfer balance account debits and credits may be applicable.

Commuting a legacy retirement product may also have social security implications. Individuals may need to seek financial advice before making decisions about their legacy retirement products to avoid unintended taxation and social security consequences.

Reserves associated with legacy retirement products

Some superannuation funds may have reserves associated with affected legacy retirement products. From 7 December 2024, the Regulation also changes the way that allocations from reserves are treated for taxation purposes, including but not limited to allocations from reserves associated with legacy retirement products. For further explanation of those changes, see Changes to reserve allocations.

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