Navigating Changes to Term Allocated Pensions: What Retirees Need to Know
Navigating Changes to Term Allocated Pensions: What Retirees Need to Know
As financial advisers, it’s our duty to keep our clients informed about the latest changes in superannuation and retirement planning. Recently, significant changes have been proposed to the accessibility of Term Allocated Pensions (TAPs). These changes could impact retirees, especially those whose Age Pension benefits are now affected by the income test. Here’s what you need to know and how you can navigate these changes.
Understanding Term Allocated Pensions
Term Allocated Pensions (TAPs) are a type of income stream product that provides regular payments over a fixed term. They were popular before 2007 due to their favourable treatment under the assets test for age pension eligibility.
However, for clients who still have these products, it is likely that their assessable assets have reduced over time, and the assets test benefits of the TAP no longer apply. Additionally, the way these products are structured means that in the later stages, the income test can result in negative consequences for age pension entitlements.
Key Change to TAPs
Relaxation of Commutation Restrictions: As of December 7, 2024, the government has relaxed the restrictions on commutation, allowing individuals a five-year window of opportunity to convert their TAPs into lump sums. This provides more flexibility for retirees to manage their funds.
Impact on Age Pension
Retirees who have shifted from the assets test to the income test, may find that their TAPs now reduce their age pension entitlements. However, if they are still assessed under the assets test, it is likely that the TAP is still beneficial to them, and the best course of action may be to retain it.
What Can Retirees Do?
- Review Your Pension Strategy: It’s crucial to review your current pension strategy in light of these changes. Consider whether converting your TAP into an account-based pension or another option might be more beneficial.
- Seek Professional Advice: Consulting with a financial adviser can help you understand the implications of these changes and develop a strategy that aligns with your retirement goals.
Special Note for SMSF Members
There are additional considerations and opportunities for SMSF members that should be carefully evaluated.
Conclusion
The changes to Term Allocated Pensions, effective from December 7, 2024, offer more flexibility but also require careful consideration. We will be speaking with our ongoing clients about their options in the coming months to assist in these decisions.
Sam Martin CFP®
Authorised Representative (No 252676)
