Income testing of retirement income streams
Generally, the gross annual payment less a social security deductible amount is assessed for the income test. The following table sets out the income test assessment of the various categories of retirement income streams:
|Asset test exempt||Annual payment - (purchase price / relevant number)|
|Asset tested (long-term)
*Not including deemed account based pensions
|Annual payment - ( (Purchase price - Com - RCV) / relevant number)|
|Asset tested (short-term)||Deemed|
Annual payment = annual payment is the amount payable to the person for the financial year under the income stream
Relevant number =
An exception applies to account based income streams from 1 January 2015. Account based income streams are deemed unless they qualify for grandfathering. For information on the income test assessment of defined benefit income streams.
Note: Details of each formula above are discussed in the following sections. If a reversionary beneficiary's life expectancy is longer then it is used to calculate the deductible amount.
These examples demonstrate the income test assessment of the various categories of retirement income streams:
Example - lifetime pension (asset test exempt)
Joan commenced a lifetime pension in 2005 which is asset test exempt. The purchase price at commencement was $200,000 and her life expectancy was 22 years. Joan receives an annual payment of $10,000.
Assessable income is: $10,000 - ($200,000/22) = $909
Example - life expectancy pension (asset test exempt)
Peter commenced a life expectancy pension in 2006. The purchase price at commencement was $200,000 and the term was 15 years.
Peter receives an annual payment of $15,000.
Assessable income is: $15,000 - ($200,000/15) = $1,667
Example - reversionary account based pension (asset tested long term)
Mark commenced an account based pension in 2012 that is reversionary to his wife Helen. Mark's life expectancy at commencement is 18.54 and Helen's life expectancy is 23.35.
The purchase price at commencement was $200,000. The account based pension is grandfathered and therefore not subject to deeming. Mark receives an annual payment of $15,000.
Assessable income is: $15,000 - ($200,000/23.35) = $6,435
Example - fixed term annuity (asset tested short term)
Gina commenced a term annuity. The purchase price at commencement was $200,000 and the term was 5 years. As her life expectancy at commencement exceeds 5 years, it is not classified as an asset tested (long-term) income stream but rather an asset tested (short term) income stream which is deemed.
Assessable income is: ($50,200 x 1.75%) + ($149,800 x 3.25%) = $5,7471
1. Assume Gina has no other financial investments subject to deeming
Last modified: Tuesday, November 20, 2018