The Government announced a number of measures in this year’s Federal Budget that were generally positive news for the SMSF sector. Like many announcements, there is naturally more ‘devil in the detail’ when it comes to these measures being released by Treasury as an exposure draft for consultation.
Recently, the SMSF Association has sought clarity from Treasury regarding two of these measures:
- Repealing the work test for voluntary contributions
- Conversion of legacy pensions.
Repealing the work test for voluntary contributions
Arguably the most popular measure announced in this year’s budget, the work test is to be repealed for individuals aged 67 – 74 to be able to make voluntary contributions, such as non-concessional contributions (NCCs). This would also extend to individuals being able to utilise the bring-forward rule where the relevant TSB eligibility criteria is also satisfied.
Questions have been put to Treasury about how the NCC bring-forward rules will work for individuals approaching age 75 and whether this change will supersede the Bill that is currently ‘stuck’ in the Senate to extend the NCC bring-froward arrangements to individuals aged 65 and 66 from 1 July 2020? The later would mean no changes are likely to be made to the NCC bring-forward rules until 1 July 2022.
The SMSF Association has indicated that it has received confirmation that the Government remains committed to passing the NCC bring forward rule changes as soon as possible.
In respect to the measures to extend access to the NCC bring-forward rule to individuals aged 67 to 74, Treasury has indicated that the ability to access the bring-forward rule is likely to be phased out or reduced as individuals reach age 75, ensuring that they cannot make voluntary superannuation contributions beyond age of 74. This is different to the current laws where the work test in invoked from age 67, where an individual can still make NCCs beyond the age of 67 if they satisfy the work test.
Legacy pension conversions
After lobbying for an amnesty period for some time, it was a great result that the Government will allow individuals to exit a specified range of legacy retirement products, together with any associated reserves, for a two-year period.
There has however been some confusion when referring to the fact sheet which accompanied the budget papers states, which stated that this measure will only apply to products which were first commenced prior to 20 September 2007 from any provider. The SMSF Association sought clarification from Treasury and they have confirmed that this measure will apply to the specified range of legacy pensions commenced prior to 20 September 2007, even if the pension has subsequently been restructured as a Market-linked Income Stream, or if it was a Market-linked income that has been commuted and restarted as a new Market-linked income stream on or after 20 September 2007.
This is an important matter to be resolved given the number of defined benefit conversions for transfer balance cap purposes around 30 June 2017, along with Market Linked Pensions that made amendments to change from being treated as capped defined benefit income streams after 1 July 2017.