The rules for assessing account-based pensions (ABP) are set to become less favourable with a move to deeming proposed from January 1, 2015. In certain situations, deeming the income from an ABP is likely to create a higher income assessment.
In light of this change, it is recommended that affected individuals take this chance to review their circumstances, before the window of opportunity closes on 1 January 2015.
Who will this apply to?
The change to the Age Pension deeming rules apply to new superannuation pensions from 1 January 2015 (including any changes made to superannuation existing pension products made after this date).
All products held by pensioners before 1 January 2015 will continue to be assessed under the existing rules (the pensioner must also have been in receipt of Government income support benefits prior to 1 January 2015 to be eligible for the grandfathered income test assessment rules)
What is the change?
Essentially, this change seeks to treat account-based pensions (ABP) as ‘financial investments’, thereby subjecting them to the income test deeming rules, where it is assumed to earn a certain return (as is the case for term deposits for example).
Under the existing rules, ABPs are exempt from the deeming rules and the income taken from an ABP receives a discount for the purposes of the Centrelink incomes test.
The discount amount is calculated using a formula that takes into account the purchase price of the income stream, divided by the life expectancy of the pension owner at purchase.
What does this mean?
The impact of the deeming provisions will depend on individual circumstances; in particular whether the income test or assets test is dominant, when calculating pension entitlements
To discuss this or any other aspects of your superannuation/succession planning requirements, please don’t hesitate to contact us.
