Veterans’ Entitlements - Commutation of Asset Test Exempt Pensions

Almost two years after the reform, for age pension purposes, of the commutation of asset test exempt pensions, the reform now applies to service pensions by reason of the Veterans’ Entitlements (Guidelines for Determining Whether Income Stream is Asset-test Exempt) Amendment Determination 2026 (ID F2926L0144: Registered 29 October 2026).

Almost two years ago, the Albanese Government implemented reform of asset test exempt pensions which the previous Coalition Government had announced but failed to deliver while in office.  The reform permitted assets test exempt pensions to be commuted, and the resulting commutation amount cashed out or applied to commence an account based pension (which pensions are not asset-tested).  The reform, however, provided a 5 year period within which to commute; this period commenced on 7 December 2024 and will end on 6 December 2029.

These reforms produced flow effects for Age Pensions (under the Social Security Act) and for Service Pensions (under the Veterans’ Entitlements Act).  First, all assets tested pensions were not potentially commutable and therefore lost their assets test status.  Second, the loss of assets test status results in a reassessment of the age and service pension entitlements (on the basis that the pensions were not asset test exempt) with any overpayment of the pension being repayable to the relevant Government Agency.

Fortunately, for age pension recipients Centrelink was empowered to treat such pensions as retaining their asset test status unless and until the pensions were, in fact, commuted.  Again fortunately, for age pension recipients, any debt arising from the reassessment of age pension entitlement as not being asset test exempt could be waived by Centrelink.

For reasons, which are not currently apparent, there were no corresponding provisions relating to service pension recipients until very recently.

Now, however, the Commission is empowered to treat asset test exempt pensions, which are commutable by reason of the December 2024 changes, as being non-commutable by the addition of the new Guideline 20 in Guidelines for Determining Whether Income Stream is Asset-test Exempt.

As to the waiving of any debt which arises on the commutation of an asset test exempt pension, the Commission has the statutory power to waive such a debt (being s206 of the Veterans’ Entitlement Act) and presumably has been waiving such debts in the same circumstances as Centrelink has been doing for age pension recipients.

While the Amendment Determination was only registered in late October 2026, this does not extend the close off date for commuting legacy pensions, including legacy pensions which are asset test exempt, without the reassessment of service pension entitlement.  The 6 December 2029 deadline still stands.

For further information, please do not hesitate to contact our helpdesk on 02 8296 6266 or email info@supercentral.com.au.