A new version of these Regulations has appeared on the Federal Register of Legislation website. A quick read of this material tonight shows two changes to the December draft that are interesting.
The first is that the Government appears to have left the need for the Exempt Current Pension Income percentage calculations to be done by an actuary. This is good not just for actuaries but also for the integrity of the tax calculations. These calculations will be further tightened when “real time” reporting of pension commencements are implemented. The largest source of the ability to sway the percentage was the ability to backdate the pension commencement date in some cases. Also, these calculations will be needed by some funds this year for CGT relief.
The other change of not allowing the limited commutation of old legacy pensions is most unfortunate. For funded defined benefit pensions, it means 50% of the pension amount above $100,000 will be added to the person’s personal assessable income and taxed at their marginal rate. It effectively is another change that will generate more tax for the Treasury. I had hoped that the opposite would have been allowed i.e. a tidy up of these old legacy pensions via fully commuted. It seems to me the two things Treasury and their political masters don’t pay sufficient attention to are: firstly, to keep the system simple so the general population doesn’t simply give up trying to engage with retirement issues; and secondly, to keep the confidence of the people with something that needs to be a long-term plan.
We don’t need – and we don’t want – an environment where a week is a long time in retirement planning.