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Social security categories of retirement income streams

Section: 9.10

 Category Characteristics Product types
Asset test exempt This category includes income streams payable for the lifetime of one or more persons or for a fixed term based around life expectancy.

Lifetime income streams in this category must meet all the requirements listed below:

  • Commenced prior to 20 Sept 2007
  • Income payments must be made at least annually throughout the life of the beneficiary
  • Cannot be commuted except in limited circumstances
  • Cannot have a residual capital value
  • The purchase price must be wholly converted to income payments
  • Payments must be fixed at the start (limited indexation is allowed each year - maximum of 5% or CPI plus 1%)
  • Income payments cannot decrease, except after an allowable commutation
  • Cannot be transferred to another person except on death to a reversionary beneficiary, or in some cases to the estate
  • Cannot be used as security for borrowing

Lifetime annuities and pensions may have a guaranteed minimum payment term

  • If purchased prior to 20 September 2004:
    • 10 years
  • If purchased from 20 September 2004 to 19 September 2007, the lesser of:
    • Life expectancy of beneficiary at commencement, or
    • 20 years

Defined benefit pensions - special rules currently place must of these income streams in this category, regardless of the date of commencement.

Life expectancy pensions must meet the first eight points above, but rather than being paid over a lifetime they are required to be paid for a specified term. The term must have equalled the person's life expectancy (rounded up) if less than 15 years, or if life expectancy exceeded 15 years, between 15 years and life expectancy.

Term allocated pensions must meet the requirements set out in section 16.14.

  • Lifetime pensions and annuities purchased prior to 20 September 2007.
  • Life expectancy pensions and annuities purchased prior to 20 September 2007.
  • Term allocated pensions purchased prior to 20 September 2007.
  • Defined benefit pensions that are commenced at any time (20 September 2007 date does not apply).
  • Income streams the Secretary has determined in writing meet the requirements.

Asset test exempt pensions or annuities purchased prior to 20 September 2004 receive 100% asset test exemption.

Assets test exempt pensions or annuities purchased on or after 20 September 2004 and prior to 20 September 2007 receive 50% assets test exemption.
Asset tested (long-term) Income streams that are not assets test exempt income streams, which have:
  • an account balance, or
  • a term of more than five years, or
  • where the life expectancy of the recipient is five years or less at commencement of the income stream, the term is greater than or equal to life expectancy.
  • All allocated annuities and pensions
  • Account based pensions and annuities purchased on or after 20 September 2007
  • All lifetime, life expectancy and term allocated pensions and annuities purchased on or after 20 September 2007 or which do not meet all the conditions for assets test exempt income streams
  • Non-account-based pensions and annuities commenced on or after 20 September 2007
Asset tested (short-term) All income streams which are not classified as assets test exempt or asset tested (long-term). These income streams generally have fixed terms of five years or less.
 
Short-term annuities and pensions, with or without an RCV, with a fixed term of five years or less.

Last modified: Tuesday, May 2, 2017