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Income testing of account based income streams

Section: 9.12

From 1 January 2015, account based income stream balances are (along with a client's other financial assets) deemed for income test purposes. Once deeming
applies to an account based income stream, actual pension payments are ignored for income test purposes.

Grandfathering applies to allow existing income support recipients to have their pre-January 2015 account based income streams continue to be assessed under the pre-January 2015 income test rules.

Under the pre-January 2015 rules, assessable income is determined by:

Annual payment - (Purpose price - Commutations - RCV/ Relevant number)

What is an account based income stream?

Account based income streams include account based pensions, allocated pensions and equivalent annuities. While no confirmation has been provided about exactly which characteristics would cause an annuity to be subject to deeming, Centrelink has confirmed that traditional lifetime and term annuities will not be included.

Term allocated pensions are not account based income streams for the purposes of these rules and will, therefore, not be subject to deeming.

Grandfathering rules

A client's account based income stream will qualify for grandfathering provided:

  • the income stream commences prior to 1 January 2015, and
  • the client is in receipt of an eligible income support payment immediately prior to 1 January 2015 and continuously receives an eligible income support payment from that time.

Where a client is receiving an account based income stream that has an automatically reversionary beneficiary and qualifies for grandfathering based on the above rules, its grandfathered status can continue when it reverts to the reversionary beneficiary upon the death of the client, provided that the reversionary beneficiary is receiving an eligible income support payment at the time of reversion and continuously receives an eligible income support payment from that time.

An eligible income support payment includes most Centrelink and DVA pensions and allowances, including Age Pension, Service Pension, Disability Support Pension, Carer Payment and Newstart Allowance. Refer to www.humanservices.gov.au for a complete list of eligible income support payments.

What changes will cause grandfathering to cease

Where a client has a grandfathered account based income stream, the following changes after 1 January 2015 will remove its grandfathered status:

  • switching income stream providers.
  • aggregating multiple account based income streams.
  • refreshing a transition to retirement account based pension strategy.
  • adding or removing a reversionary beneficiary (if the provider requires a new income stream to be commenced).
  • ceasing to receive an eligible income support payment (switching immediately from one eligible income support payment to another will not cause grandfathering to cease).
  • where the client dies and a new pension is paid to a beneficiary.

Once an income stream's grandfathered status is removed, it is then subject to deeming.

Grandfathered account based income streams - Centrelink reporting

For Centrelink reporting purposes, the 'gross annual nominated payment' of a grandfathered account based income stream is equal to the sum of actual payments received plus payments to be received for the whole financial year.

Where the person nominates to increase or reduce the amount of annual payments part way through the financial year, the new annual payment amount is assessable for the remainder of the financial year.

Example

Bob has a grandfathered account based pension.

On 1 July 2015, he nominates to receive payments of $1,000 per month from his account based pension. For Centrelink purposes, the annual payment amount is:

Actual payments received Nil
Payments to be received 12 x $1,000 = $12,000
Total annual payments $12,000

On 1 January 2016, Bob decides to increase his monthly payments to $2,000. For Centrelink purposes, the annual payment amount is:

Actual payments received 6 x $1,000 = $6,000
Payments to be received 6 x $2,000 = $12,000
Total annual payments $18,000

Centrelink will assess an annual payment of $18,000 from 1 January 2016 for the remainder of the financial year.

Last modified: Tuesday, May 2, 2017