Tim Miller, head of education for Smarter SMSF, said the reality is once the power to commute came in, it was going to impact anyone that had asset test exemption, because if they utilise the powers to commute, they would lose their asset test exemption.

“With social security benefits, if you didn't have the asset test exemption then social security had the power to reassess benefits for a period up to five years and impose a debt of any amount paid that you wouldn't have otherwise been entitled to because of those assets,” Miller said.

“That was why we needed that debt waiver. The government has released the power to the secretary of social security to be able to provide a debt waiver to individuals. However, that power only comes into effect once debt waiver specification makes its way through its 15 sitting day disallowance period, which, of course, is captured in a federal election.”

He continued that as there are no sitting days now until after the federal election, it’s perhaps a better tactic to wait until the disallowance period is finished to have absolute certainty that the motion will be passed, and ultimately that the secretary can waive debts.

“We are actually dealing with two quite distinct legislative instruments here. The first legislative instrument was the regulatory change that occurred in December, and that was a change to the SIS Act and the Tax Act that provided for the power to commute,” he said.

“Following that was the extension of the allocation from reserve requirements, which were associated with lifetime pensions. Predominantly now, the key issue there is that both those SIS and tax regulations come into effect from the day following the day that they're registered,” he said.

“The social security specification, the debt waiver specification, was introduced in the last week of March and the reality of that is, unlike the system tax regulations, the secretary's powers don't come into effect until after the disallowance period.”

This means, said Miller, the government would have the power to go back and waive debts from a commutation that occurred from the introduction of the regulations, but the fear is, if for whatever reason, the motion is disallowed the secretary will never get that power, and won't be able to back date.

“Hence why we're saying put on the brakes for asset test exemption until we're absolutely certain that the power is with the secretary,” he added.

Dunn added there are also two classes of debts that, in essence, have been covered within the instrument and it is unclear as to how it will work in practice.

“The fact that we now have our SIS regulation that says when someone commutes, the impact of that is that the loss of asset tests exemption occurs. Then naturally, under these rules, you have the ability to start a new account based pension, subject to transfer balance cap, leaving an accumulation if you're the primary beneficiary of that money, or you lump sum it out of super,” he said

“The second part of this is what happens if you don't want to commute at this point in time, do you see other changes in respect to, for example, the governing rules of the fund?”

Miller continued this is a more technical “piece to the whole puzzle”, and at no point in time was the objective of these new regulations to remove the capacity for people to maintain their asset test exemption if they wanted to do so.

“So, for those that wanted to keep their asset taxes test exemption, then, in theory, they should be able to do so. Hence the five-year window and the timeframe for people to think about it,” he said.

“But by inserting the new regulations into the SIS Act, it effectively meant for all SMSFs that technically they became commutable, which goes against the grain of the Social Security Act.

“What that ultimately means is that in certain circumstances, and the way that this specification is worded, is if you have amended your governing rules to allow for the commutation, then that will also result in failing the social security requirements and potentially and loss of asset tax exemption, and a debt being raised.”