Pensions – Deeming changes for Account Based Pensions

Pensions – Deeming changes for Account Based Pensions

Pensions – Deeming changes for Account Based Pensions

New rules will apply for calculating eligibility of government pensions –  one notably is that from 1 January 2015, superannuation account based income streams will be deemed under the existing deeming rules for the Age Pension.

Eligibility for Age Pension is determined by looking at BOTH Income and Asset Tests and the pension you get is the lower of the rates determined by each test. Normally the ACTUAL income received from what Centrelink calls “financial products/assets” such as shares and term deposits is not used but a “deemed” amount (about 2% currently used) where an assumed amount is earned by those assets (this can be an advantage where you DO earn more that the deemed rate). With super income streams, currently (and existing ones before 31 December 2014, will continue as currently assessed, after 1 January due to grandfathering allowances) super income streams are counted against the Age Pension Income Test –  there is a special calculation which allows for the Tax Free (Deductible) portion of the super account to be not counted. And the account balance is used as part of the Asset Test. So for the Income Test, the income stream less the tax free-deductible amount is taken. It is known as a return of capital.

It looks like this –

Means test

(Source – Retirement Income Strategic Issues Paper)

From 1 January 2015 any new super income streams commenced or altered/re-freshed/combined, will have the full super account income stream “deemed” – an amount determined/assumed to be earned as part of assessing the Income Test.

What are the test levels above which pension reduces?

Income asset levels

(Source – Financial Planning Magazine)

This means if the value of a pensioner’s financial investments falls between $139,000 and $253,000, their pension entitlement will be assessed by the Income Test. These pensioners are then affected by deeming changes, because the additional assessable income will reduce their age pension entitlement. 

A single homeowner pensioner with financial investments in excess of $253,000 will have their pension entitlement assessed under the Assets Test and as such, will not be immediately affected by deeming changes. They may, however, be affected by deeming changes in the future, as the value of their financial investments reduces.  

One result is more non-homeowners will be affected by these changes than homeowners. The reason being is that non-homeowners can have higher levels of assets when compared to homeowners before their pension entitlement is determined by the Assets Test.  

In Summary –

From 1 January 2015, new ABPs will be assessed the same way as financial investments, such as cash, shares and managed funds, are assessed. This means that these ABPs will be subject to deeming rules for Income Test purposes when determining an individual’s entitlement to Centrelink and DVA benefits.  

The deeming will apply to: 

* Account Based Pensions.  
* Account Based Annuities (currently not offered in Australia). 

The deeming will not apply to: 

* Defined Benefit Pensions.
* Lifetime and Life Expectancy Annuities.
* Fixed Term Annuities if the term is longer than five years. 

Grandfathering provisions will apply to ABPs commenced before 1 January 2015 where: 

* the person was receiving an eligible Income Support Payment immediately before January 2015; and
* since 1 January 2015, the person has been continuously receiving an eligible Income Support Payment. 

These ABPs will retain the current Income Test assessment for social security purposes where the pension payments are assessed concessionally, allowing for the return of the capital (also known as the Centrelink Deductible Amount).  

Grandfathering will also apply to ABPs that meet these conditions and revert to a reversionary beneficiary following the death of the pensioner if the reversionary beneficiary is in receipt of an eligible Income Support Payment at the time of reversion and if they continue to receive an eligible Income Support Payment.

For more see case studies at Financial Planning Magazine, and more explanation at Super Guide .

Got questions? If you want experts who have years of helping others, without the hype – then call for a FREE strategy session today and also get your FREE Expert Guide – Self-Managed Super and You top right hand side above.

If you have any questions, why not give us a call – it’s FREE also!

No obligation. 0407 361 596, Paul.

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