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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
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]

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 - 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: Tuesday, November 20, 2018