Legacy Pension Reform – The Missing Piece.

The Missing Piece of Legacy Pension Reform is now in place with the New Guidelines for Asset-Test Exempt (ATE) Income Streams having been issued. The New Guidelines confirm that income streams which had ATE status immediately before the commencement of the Legacy Pension Reform retain that status despite now being commutable. Such income streams will only lose ATE status if and when they are commuted.

Previously ATE income streams had to be non-commutable

One common feature of pensions which qualify as asset text exempt (whether 100% or 50%) is the requirement that the pensions must be non-commutable (subject to a small number of permitted exceptions which are all very narrowly focused). If an asset test exempt pension became potentially commutable (outside the very few and narrow exceptions), the pension would immediately cease to be asset test exempt – whether 100% or 50%.

All ATE income streams are now commutable until 7 December 2029

When the legacy pension reforms commenced on 7 December 2024, all lifetime, life expectancy and market linked pensions which were previously asset test-exempt immediately ceased to have that status simply because the pensions were now potentially commutable outside of the permitted exceptions to the non-commutation requirements. The fact that the pensions were not commuted was irrelevant.

So, the position since 7 December 2024 is that all individuals receiving the age pension who had assets test exempt pensions should have had their age pension entitlements reassessed on the basis that the lifetime, life expectancy and market linked pensions had no asset test exemption - whether or not the pensions were in fact commuted.

Centrelink consequences

Clearly there has been no such automatic reassessment of the age pensions entitlements – except in the case of those individuals who did in fact commute legacy pensions which had asset-test exempt status.

Equally clearly, the reason for the no automatic reassessment was that the Government knew (and especially, the Department of Social Services knew) that there would have to be amendments to the relevant provisions of the Social Security Rules to treat any legacy pension which fails the specified requirements for asset test exempt status, solely because of the Legacy Pension Reforms, as still satisfying the non-commutation requirements unless and until the pension is actually commuted.

Purpose of New Guidelines

This is the purpose and effect of the New Guidelines – being Social Security (Asset-test Exempt Income Stream Guidelines) Determination 2025 (F2025L01202). The relevant provision is Guideline 21 of the Determination which allows the Secretary of the Department of Social Security to determine that a legacy pension, which before 7 December 2024 had assets-test exempt status (whether 100% or 50%), does not lose that status on and after 7 December 2024, merely because the pension is now commutable in circumstances outside the previously permitted circumstances.

The long and short is that only if and when a legacy pension is commuted under the Legacy Pension Reforms, will the pension cease to be an asset-test exempt pension – assuming of course that the pension was an asset-test exempt pension in the first place and that the pension has not lost its asset-test exempt status for some other reason.