In December last year, the Australian Government introduced changes to legacy pensions, giving retirees more control over their retirement savings. These changes impact market-linked, lifetime, and life expectancy pensions, allowing pensioners to move to more flexible income options.
What is a Legacy Pension?
What is a Legacy Pension?A legacy pension refers to older pension structures that were available before changes to superannuation laws made them outdated or closed to new members. These pensions were often designed under previous regulations and may have different rules for withdrawals, taxation, and Centrelink treatment compared to modern pension options.
Common types of legacy pensions include:
Market-Linked Pensions (Term Allocated Pensions): Payments are based on investment performance and life expectancy.
Lifetime Pensions: Provide guaranteed income for life but may have restrictions on withdrawals or lump sums.
Life Expectancy Pensions: Payments are structured over a set number of years, based on life expectancy.
Many retirees remain in these pensions because of their historical benefits, but recent government changes now allow them to move to more flexible income options, such as account-based pensions. However, transitioning out of a legacy pension can have tax, Centrelink, and estate planning implications, so careful assessment is needed.
What Are the Key Changes?
✅ Five-Year Window to Convert Legacy Pensions
Retirees now have five years to convert eligible legacy pensions into an account-based pension or other income stream options, offering more flexibility in managing retirement income.
✅ Option to Move to an Account-Based Pension or Keep Funds in Accumulation
Pensioners can now transition their legacy pensions into account-based pensions for more efficient fund management or keep funds in accumulation for potential long-term benefits.
✅ Exemptions from Contribution Caps
Funds moved from pension reserves to accumulation are exempt from contribution caps, helping SMSF trustees manage their superannuation without triggering excess tax.
What Are the Impacts for Retirees?
Tax Implications: Converting legacy pensions may result in tax liabilities, so careful planning is essential.
Centrelink & Age Pension Impact: Some retirees may lose favourable Centrelink treatment, affecting their Age Pension entitlements.
Estate Planning Considerations: Changes to pension structures could impact how benefits are passed on to beneficiaries, requiring a review of estate plans.
How Do I Know If I Have a Legacy Pension?
There are key points to help you identify a legacy pension:
- Specific names: Look for terms like “complying lifetime pension”, “life expectancy pension”, or “market-linked pension” on your super statements.
- Start date: Generally, legacy pensions started before September 20, 2007.
- Limited flexibility: Legacy pensions often have restrictions on how much you can withdraw or how you can manage your pension compared to newer options.
What Should I Do If I Have a Legacy Pension?
Not sure if your pension is affected? We’re here to help. Contact us today to discuss how these changes affect your retirement strategy. Email us at team@tagfinancial.com.au or give us a call on 03 9886 0800.
Legacy pension reforms offer more flexibility but also come with financial complexities. If you’re considering making changes, it’s crucial to assess the potential impacts and plan accordingly.
Disclaimer: The information contained is general in nature. Professional advice should be sought before acting on any aspect on this page. Financial planning services provided by TAG Financial Advisors Pty Ltd (ABN 77 154 205 017 AFSL 415632), a wholly owned subsidiary of TAG Financial Services Pty Ltd (ABN 67 075 374 686). Copyright 2025. Please do not reproduce without the expressed written consent of the author.