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Asset tested (short term)

Section: 9.6

Fixed term annuities with a term of five years or less are generally classified as asset tested (short term) income streams.

The only exception is where the member has a life expectancy of five years or less at commencement of the income stream and the term is greater than or equal to their life expectancy. In this case, the income stream will be assessed as asset tested (long term).

Assets test assessment

The asset value of an asset tested (short term) income stream is determined using the following formula:

Purchase price - [(purchase price - RCV) ÷ relevant number) x term elapsed]

where:

  • Purchase price is the amount made to purchase the annuity less commutations.
  • RCV is the residual capital value.
  • Relevant number is the term of the annuity.
  • Term elapsed is the number of years that have elapsed since the annuity's commencement day. The number of years is rounded down to the nearest:
    • half year, when the income payments are more frequent than annual (eg fortnightly, monthly, quarterly or six monthly), or
    • whole year when the income payments are annual.
Example:

Bob purchased a five-year annuity for $100,000. It has a residual capital value of $50,000. He receives monthly income payments from the annuity.

The assessable asset value of the annuity after 10 months from commencement is:

$100,000 - [($100,000 - $50,000) ÷ 5) x 0.5] = $95,000

Income test assessment

The income value is calculated by applying deeming to the assessable asset value.

Example

In the example above, the assessable asset value is $95,000.

Under the income test, deemed income is assessable as follows for a single pensioner:

($51,800 x 1.75%) + ($43,200 x 3.25%) = $2,310.50

Last modified: Wednesday, July 24, 2019