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Asset testing of retirement income streams

Section: 9.8

The assets test treatment of retirement income streams is summarised in the table below:

Income stream category Assets test value
Complying income stream purchased prior to 20 September 2004 100% exempt
Lifetime or life expectancy income stream purchased 20 September 2004 to 19 September 2007 50% x [PP - (PP/RN) x TE)]
Defined benefit income stream 100% exempt
TAPS purchased 20 September 2004 to 19 September 2007 50% x account balance
ASSETS TESTED (LONG TERM)
Account based income streams Account balance
Non account based income streams PP - [((PP-RCV/RN) x TE]
ASSETS TESTED (SHORT TERM
Fixed term annuities (term less than 6 years) pp - [((PP-RCV/RN) x TE]

Where:

PP = purchase price less commutations

RN = relevant number

Which is:

  • the term of the income stream where it is payable for a fixed number of years
  • the income support recipient's life expectancy where it is payable during their lifetime only
  • the longer of the income support recipient and the partner's life expectancies where the income stream is jointly owned and payable for life
  • the longer of the income support recipient and a reversionary beneficiary's life expectancies where the income stream is reversionary and payable for life

TE = term elapsed which is the number of years since commencement.

  • For income streams that pay annual payments, the term elapsed is calculated once a year.
  • For income streams that pay more than once per year, the term elapsed is calculated twice a year at the start of each six month period.

RCV = residual capital value

Case studies

The following examples demonstrate the asset test assessment of the various categories of retirement income streams:

Example - term account based pension

John commenced a term account based pension in 2006.50% of the account balance is an assessable asset.

On 1 July 2017, the account balance is $200,000. Assessable asset value is 50% x $200,000 = $100,000

Example - 5 year fixed term annuity

Pablo commenced a 5 year term annuity in 2014. Purchase price $100,000. Nil residual capital value.

It has been 3 years since the annuity commenced.

Assessable asset value is:

PP - [((PP-RCV)/RN) X TE]

$100,000 - [(($100,000 - $0)/5) x 3] = $40,000

Last modified: Friday, January 12, 2018