Written

For

The

Australian

-

Trapped

legacy

pension

holders

finally

offered

a

legislated

escape

route

Remember those "too good to refuse" retirement products your parents were sold in the late 90s? The ones that boosted their age pension while locking their money away for life? Turns out, about 17,000 Australians are still stuck in them — and until now, there was no way out.

These "legacy retirement products" — term-allocated pensions, lifetime pensions and life-expectancy pensions — were the darling of pre-2007 retirement planning. Sold by the likes of AMP, MLC and Challenger, they offered Centrelink assets test concessions in exchange for locking up capital. Back then, it seemed a fair trade. Twenty-five years on, many retirees are trapped in products that no longer serve them.

Here's the problem. A retiree who took one of these out in their 60s might now be in their 80s, entitled to the full age pension anyway due to natural drawdown and rising thresholds. The Centrelink concession has become irrelevant. Worse still, some are paying thousands in annual SMSF fees to maintain income streams that have dwindled to a fraction of their original value. And with aged-care bonds looming, access to capital is now far more valuable than any pension top-up.

The good news? Legislation received royal assent on December 5, giving retirees a five-year window to exit these products and shift the money out of super. Reserves held by providers can also finally be released.

There's a fairness argument worth acknowledging. Retirees who took the Centrelink sweetener are now being allowed to unwind the deal when the restrictions no longer suit them — while everyone else played by standard rules. But that debate is moot. The law has passed.

If you or a family member is stuck in one of these, now is the time to contact the provider. There are still wrinkles to iron out — exit valuations, tax treatment, transfer balance cap implications — but for the first time in a generation, the door is open.