If you’re considering restructuring a market-linked pension, you may have encountered delays in receiving a commutation authority from the Australian Taxation Office (ATO). In this blog post, we’ll explore what a market-linked pension (MLP) is, discuss recent changes in the legislation, and provide guidance on how to report events prior to the law change.
Table of Contents
Understanding Market-Linked Pensions (MLPs)
A market-linked pension is a hybrid pension that derives its benefits from both the fund’s value and the remaining amount within it. According to the Superannuation Industry Supervision Regulations 1994 (SIS Regulations) under section 1.06 (8), this type of pension, although less flexible than standard pensions, has been available since 2004 and can be helpful for early retirement planning.
Changes Introduced by the Simplified Superannuation Reforms
In 2007, the Simplified Superannuation reforms brought about significant changes to market-linked pensions. After 20 September 2007, any new pension interest commenced in a self-managed superannuation fund (SMSF) needed to be an account-based pension, as defined under 1.06(9A) of the SIS Regulations. Consequently, members could no longer initiate a new market-linked pension with their accumulation interest in an SMSF. However, a member could commence a new market-linked pension in an SMSF by rolling over the balance from the commutation of an existing complying pension, such as a defined benefit pension or another market-linked pension.
Another important change resulting from the simplified superannuation reforms was the requirement for market-linked pensions initiated after 20 September 2007 to meet the minimum pension standards for account-based pensions in addition to the market-linked income payment rules.
Recent In-Law Changes: 5 April 2022
Effective from 5 April 2022, super funds gained the ability to alter the timing of certain debit and credit events in a member’s transfer balance account. Additionally, they were granted the authority to commute excess transfer balance amounts for certain income streams in response to a Commissioner’s commutation authority (CCA).
Reporting Events Prior to the Law Change
For events where the commutation of the original pension and the commencement of the new affected pension took place before the regulations’ commencement on 5 April 2022, the reported effective start date should be recorded as 5 April 2022.
Super funds should conduct a thorough review of their records to determine if any such events occurred prior to 5 April 2022. If necessary, funds should correct their existing reporting or report these events for the first time.
Understanding Commutation Authority and Important Considerations
To commute your pension, a commutation authority from the ATO is required. However, it’s crucial to note that the ATO issues a commutation authority only after the member receives an excess transfer balance determination. This process is subject to a legislative requirement that mandates a waiting period of 60 days to allow members to make an election.
After the 60-day period has elapsed, the ATO may issue a commutation authority within a reasonable timeframe, typically ranging from 28 to 30 days. However, if the TBAR (Transfer Balance Account Report) or determination is amended, an objection is lodged, or the member chooses to extend the election due date in the default commutation notice, the process may take longer.
Thank you for reading our Blog Post here at Mint Super Audits, our knowledgeable professionals will be happy to address your queries, provide clarifications, and offer tailored solutions based on your specific situation. We understand the intricacies of market-linked pensions and the complexities of recent legislative changes, and we are committed to assisting you in making informed decisions.
Please note that the information provided in this blog post is for general guidance purposes only, and it is always advisable to consult with a qualified financial advisor or seek professional advice specific to your individual circumstances.