“The two exceptions – the ‘replacement pension’ exception and the ‘fair and reasonable’ exception – still apply, with the replacement pension exception being far less stringent in its application,” Hallinan said.

“Additionally, a new exception has been introduced which deals with the situation where a non-reversionary legacy pension, including flexi-pensions, has ceased by reason of the death of the pensioner and the amount is allocated to a member account who is a dependant of the deceased pensioner.”

This exception will now apply two beneficial changes. First, the entire surplus amount can be allocated to the relevant member’s account, whereas previously only the commutation value of the pension could be allocated. Second, the allocated amount need not be used as the initial balance of a replacement pension in the form of a market-linked pension.

“The allocated amount could remain in accumulation phase, be cashed out tax-free as the member has most likely already attained age 60, or be used to commence an account-based pension subject to transfer balance cap space,” he said.

Hallinan said the fair and reasonable exception continues to apply on the same terms as before, that is allocation to all members in proportion to their member account balances. The allocation must be less than 5 per cent of the relevant members’ account balance.

“However, the allocation will now be treated as a non-concessional contribution rather than a concessional contribution.”

The new death benefit exception applies where the lifetime, life expectancy or flexi-pension has been commuted because of the death of the member to whom the pension was paid, he said.

“The surplus amount is allocated to one or more member accounts of the dependants of the deceased member and then that allocated amount is paid out as a superannuation death benefit in the form of a superannuation lump sum,” he added.

“The result of the new exception is that the surplus amount is allocated to a dependant of the deceased member, and will not be counted as an NCC. It must then be paid out as a lump sum death benefit which will be tax-free if the member is a death benefits dependant but taxable at 15 per cent if the member is a non-death benefits dependant.”

Furthermore, Hallinan said there is no requirement for this exception to apply on a “fair and reasonable” basis, meaning the trustee could choose to allocate the surplus pension amount to one or more dependants of the deceased member to the exclusion of the others.

“There is also no requirement that the allocation must be equal in amount.”