He continued that the new Social Security (Waiver of Debts – Legacy Product Conversions) Specification 2025 provides a significant update for members holding asset test exempt (ATE) pensions.

“Prior to this change, commuting these pensions, or even varying their terms, could trigger a retrospective assessment, potentially resulting in a significant debt owed to the Commonwealth for overpaid age pension benefits.”

“The new specification now waives any such debts for members who commute their legacy pensions in accordance with the new superannuation laws.”

This includes both 100 per cent and 50 per cent ATE pensions, which were previously at risk of creating a debt when commuted.

“The waiver applies retroactively, ensuring that members who commute their pension during the current five-year amnesty period between 7 December 2024 – 6 December 2029 will not face any penalties or liabilities under the ‘look-back’ provisions,” Stead said.

“Importantly, while this change eliminates the risk of financial penalties, it does mean that members will lose their asset test exemption going forward, which could impact their eligibility for certain social security benefits.”

Stead said a member contemplating exiting a legacy pension under the amnesty should get additional advice for a range of other issues, including financial advice from a licensed financial planner under the Corporations Act 2001 (Cth) and tax advice on the commutation, including TBC advice.

“[The member should also get] advice on the social security implications of the commutation in respect of Centrelink or the Department of Veteran Affairs, or the Commonwealth Seniors Health Card including with regard to the recent debit waiver instrument,” he added.

“An actuarial input, where relevant, on the commutation value of the pension is also recommended as well as superannuation law advice on the succession planning implications of commuting a legacy pension and other associated changes to their super entitlements.”

Finally, he said, SMSF members should also seek clarification on whether prior historical debits and credits to their transfer balance account associated with the pension have been correctly recorded and ensure the right documents are completed.

“In particular, it should be noted that a member contemplating the commutation of a capped defined benefit income stream or market linked pension should consider the need to obtain expert advice prior to undertaking any action due to the complex debit rules that apply.”

“In broad terms, due to the special debit rules for MLPs, TBC space can be severely eroded and it may not be possible for the member to transfer any additional amounts into retirement phase after commuting. In some cases, such as for CDBIS MLPs with large account balances, the commutation may result in an excess transfer balance position for the member which may require careful management, such as a notice being obtained from the commissioner for a non-commutable excess transfer balance.”