In short, we now have everything we need to allow anyone to fully commute their SMSF legacy pension under the December 2024 amnesty without fearing a social security debt will be payable. It’s been a long and involved journey to get here but the final piece in the puzzle – a new legislative instrument made by the Minister – was officially locked in from October 2025.
The amnesty introduced in December 2024 provides a 5 year window in which SMSF members can fully commute market linked and defined benefit pensions without any restrictions. Anyone not receiving social security benefits has been able to act on that new opportunity with confidence since it was first introduced 12 months ago.
However, anyone whose pension was partially (50%) or fully exempt from the social security assets test had an extra step to consider. The social security law – quite separately to the superannuation law - prohibits commuting these pensions except under extremely limited circumstances. And commutations that don’t comply with the law trigger the Government to raise a social security debt (ie, money the member has to pay back). Basically the Government looks back over the last 5 years, recalculates the member’s age pension as if their SMSF legacy pension wasn’t exempt from the assets test, and the member has to pay back the difference between this amount and what they actually received.
Not surprisingly, anyone impacted by the social security assets test wanted the Government to introduce other changes to make sure they could commute their SMSF legacy pension without facing a huge social security debt.
Back in March, the Minister made a legislative instrument allowing the Secretary of the Department of Social Services to waive debts raised as a result of commutations like these. We wrote about this back in March 2025 (Legacy pensions – another piece of the puzzle). It may sound like an odd way to go about things – why issue an instrument to waive debts rather than just changing the law so that debts don’t arise in the first place? Perhaps this just highlights how hard it is to get changes to the Social Security Act 1991!
That instrument came into effect once a certain amount of time (measured in Parliamentary sitting days) had elapsed. The election earlier this year meant it took a long time for that period to elapse but it did in October. At that point, the Department officially listed the waiver on its website (see here).
So now we’re good to go.
Technically a debt will be raised but it will be waived.
Unfortunately the member will still lose the asset test exemption and this might still mean they lose their age pension – but at least they won’t also have a debt imposed.
The loss of the age pension will mean some people choose to leave their legacy pension in place anyway, despite their newfound freedom to change things.
But many will choose to commute. Often the reasons include wanting to:
It’s likely they’ll be fine. Now that the Secretary has the power to waive debts there is nothing to stop them looking back to December 2024 and waiving them from that time. There’s no way of guaranteeing this in advance – hence our preference for waiting until it was official. Now it is. Commute away.