Finally, movement on legacy super products

After years of lobbying, the Federal Government has finally moved to make it easier for people to exit legacy superannuation products.

The move is contained within the Treasury Laws Amendment Instrument 2024: Self-managed superannuation funds – legacy retirement product conversions and reserves legislation which is intended to relax commutation restrictions on the legacy products.

The measure applies to legacy lifetime, life expectancy and market-linked superannuation income stream products that commenced prior to 20 September 2007, or were commenced as a result of a conversion of an earlier legacy product that commenced prior to that date.

The explanatory memorandum attaching to the draft legislation makes clear that the intention is to allow individuals to exit products that are no longer suitable for their circumstances and to allow for the allocation of reserves that no longer serve an ongoing purpose.

“Lifetime and life-expectancy products provide significantly less flexibility than more modern account-based income streams in terms of valuation and payments setting,” it said.

“Although market-linked income streams have similarities to account-based income streams, all these legacy products have broadly equivalent commutation restrictions. In practice, this means that the only way to voluntarily exit these products, prior to death or expiry of term, is conversion to another legacy product.

“If an individual were to commute their legacy product without meeting one of the exceptional circumstances, it would result in tax and regulatory consequences. The use of reserves is a core feature of legacy products, namely complying lifetime and life-expectancy pensions and annuities.”