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|
|Assets test exempt|
|Complying income stream purchased prior to 20 Sept 2004||100%|
|Lifetime or life expectancy income stream purchased 20 Sept 2004 to 19 Sept 2007||50% X[PP - (PP/RN) X TE)]|
|Defined benefit income stream||100% exempt|
|TAPs purchased 20 Sept 2004 to 19 Sept 2007||50% X account balance|
|Asset tested (long term)|
|Account based income streams||Account balance|
|Non account based income streams||PP - [((PP-RCV)/RN) X TE]|
|Asset 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 - 50% asset test exempt lifetime annuity
Jill commenced a non-reversionary lifetime pension in January 2006 which qualified for a 50% asset test exemption. The purchase price was $100,000.
Her life expectancy at commencement was 21.15.
She receives monthly payments from the lifetime pension. In January 2019, the assessable asset value of the lifetime pension is:
50% ?~ [$100,000 - ($100,000/21.15) x 13)] = $19,267
Example - term allocated pension
John commenced a term allocated pension in 2006. 50% of the account balance is an assessable asset.
On 1 July 2018, the account balance is $200,000. The assessable asset value is 50% ?~ $200,000 = $100,000
Example - 5 year fixed term annuity
Pablo commenced a 5 year term annuity in 2015. The purchase price was $100,000 and there was no residual capital value.
It has been 3 years since the annuity commenced.
The assessable asset value is: PP - [((PP-RCV)/RN) x TE]
$100,000 - [(($100,000 - $0)/5) x 3] = $40,000
Last modified: Wednesday, May 1, 2019