The Federal Government has tweaked its retirement income covenant to overcome shortcomings identified by industry feedback including correcting an error in the way market-linked pensions are valued under the transfer balance cap when commuted or rolled over.
Importantly, the Government has also given superannuation funds more time to offer comprehensive income products in retirement (CIPRs) to 1 July, 2022 and has increased the threshold superannuation balance from $50,000 to $100,000.
The changes were confirmed by the Assistant Treasurer, Stewart Robert who said the change to the market-linked pensions arrangement would ensure that an individual’s transfer balance cap position was accurately reflected and would mitigate the risk of an individual breaching their cap if they chose to rollover or commute their market-linked pension.
He said the Government was also amending the law to maintain the capped defined benefit treatment of market-linked pensions under the transfer balance cap where they had been rolled over as a result of a successor fund transfer.
This would avoid situations where market-linked pensions that were rolled over as a result of a merger or acquisition could lead to individuals inadvertently breaching their transfer balance cap.
The minister said the law would also be amended to ensure that death benefits that include life insurance proceeds are not subject to tax when they are rolled over to a new superannuation fund, meaning that death benefit lump sums remained tax-free for dependants, even if rolled over within the superannuation system.
The Government also announced that the definition of the life-expectancy period for innovative income streams would be amended to account properly for the number of days in a leap year, aligning the definition of life-expectancy with annuity anniversary dates and ensuring that individuals with the products were not being short-changed in a leap year.
The Government is also moving to provide transfer balance cap credits and debits for innovative income stream products that are paid-off in instalments, amending regulations to make sure that these products receive appropriate treatment under the transfer balance cap, regardless of how they are paid off.
Robert said that, finally, the valuation of defined benefit pensions under the transfer balance cap would be amended to reflect when pensions are permanently reduced following an initial higher payment, such as for some public sector defined benefit reversionary pensions or reclassification of invalidity pensions. This would ensure that holders of the pensions were not disadvantaged when reductions occurred.