“This legislation represents a turning point for SMSF members trapped in outdated pension arrangements,” he said.

“It not only eases administrative burdens but also provides more equitable options to manage reserves and align with modern superannuation strategies."

He continued that while the reforms are broadly positive, SMSF members need to approach the changes with careful planning in a number of areas including allocations from general reserves, which must be monitored to avoid breaching non-concessional contribution caps.

“Members should consider the impact on government benefits, as commutation may make previously exempt assets assessable under Centrelink’s Assets Test,” Ali said.

“And it’s important to remember the five-year grace period requires timely action, especially for funds with complex or illiquid assets.”

Melanie Dunn, principal for Accurium, said these regulations provide members and their families much greater flexibility to manage or wind up their SMSF, reduce administrative costs, and enable the payment of death benefits as part of estate planning strategies.

However, she added that some considerations and complexities need to be worked through.

“There does remain a concern for asset test exempt (ATE) legacy pensions with the change in regulations which have not yet been addressed at this time,” Dunn said.

“The change in regulation means technically legacy pensions may have lost ATE and could incur a five-year clawback of social security entitlements if commuted under the new regulations.”

Dunn added confirmation from the Assistant Treasurer is expected regarding the social security means testing implications. She noted that Treasury is working closely with the Department of Social Services and the Department of Veterans’ Affairs to ensure the issues raised above are resolved.

Tim Miller, head of education for Smarter SMSF, explained that while these regulations still need to be tabled in both houses of Parliament, and MPs can potentially move to disallow them, they remain in effect until such a motion is passed.

“In the current environment, with an election looming, the full allotment of sitting days allowable to make such a motion may not be reached prior to Parliament being dissolved, meaning the regulations may be subject to being reversed well after our next government is elected, so it’s important to make hay whilst the sun shines,” he said.

“All in all these measures are a welcome addition to our regulations and while we hoped for some further enhancements, they are better than what we had prior to their introduction. Of course, there are still plenty of things to consider, especially for those social security clients who use these for asset test exemption purposes.”

Meg Heffron, director of Heffron, said if a client’s legacy pension was put in place for social security purposes, “hold fire”.

“We are still waiting for an additional legislative instrument that will make sure they receive the appropriate treatment under the Social Security Act 1991,” she said.

“While they will lose their asset test exemption moving forward, we need this instrument to ensure they are not also issued a debt notice assuming that the pension counted for the assets test for the last five years.”