The Morrison Government has announced new technical changes to address some minor but important issues that affect retirees.
The Government is correcting an error in the way that market-linked pensions are valued under the transfer balance cap when they are commuted or rolled over, resulting in a nil debit. This will ensure that an individual’s transfer balance cap position is accurately reflected and will mitigate the risk of an individual breaching their cap if they choose to rollover or commute their market-linked pension.
The Government is also amending the law to maintain the capped defined benefit treatment of market linked pensions under the transfer balance cap where they have been rolled over as a result of a successor fund transfer. This will avoid situations where market-linked pensions that are rolled over as a result of a merger or acquisition could lead to individuals inadvertently breaching their transfer balance cap
The law will also be amended to ensure that death benefits that include life insurance proceeds are not subject to tax when they are rolled over to a new superannuation fund. This means that death benefit lump sums remain tax-free for dependants, even if rolled over within the superannuation system.
The Government also announced that the definition of the life-expectancy period for innovative income streams will be amended to account properly for the number of days in a leap year. This will align the definition of life-expectancy with annuity anniversary dates and ensure that individuals with these products are not being short-changed in a leap year.
The Government is also moving to provide transfer balance cap credits and debits for innovative income stream products that are paid-off in instalments, amending regulations to make sure that these products receive appropriate treatment under the transfer balance cap, regardless of how they are paid off.
Finally, the valuation of defined benefit pensions under the transfer balance cap will be amended to reflect when pensions are permanently reduced following an initial higher payment, such as for some public sector defined benefit reversionary pensions or reclassification of invalidity pensions. This will ensure that holders of these pensions are not disadvantaged when reductions occur.
The Government is committed to the smooth, ongoing implementation of the superannuation taxation package, to ensure that it remains fair and effective. While these are relatively minor changes, the Government is unwavering in its commitment to the integrity of Australia’s superannuation system.
The Government has previously announced the introduction of a retirement income covenant. Among other things, this will require trustees to consider the retirement income needs of their members, by developing a retirement income strategy.
Following consultation, the Government will increase the threshold superannuation balance for offering a Comprehensive Income Product for Retirement from $50,000 to $100,000 and delay the requirement for funds to offer these products to 1 July 2022.
This Government is working with industry to support a higher standard of living for retirees. The retirement income covenant is a mechanism to ensure that superannuation funds balance the needs and preferences of members beyond the accumulation phase and in to the retirement phase and we are committed to ensuring we get the settings right.