Asset testing of retirement income streams
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]|
PP = purchase price less commutations
RN = relevant number
- 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
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