When do these pension assessment rules apply?
Since 1 January 2015, new account based income streams have been treated differently by Centrelink from their prior treatment. This applies to Account Based Pensions, also referred to as ‘ABPs’. ABPs allow retirees to receive an income from their superannuation savings. The change made in 2015 means that Centrelink assesses ABPs the same as other financial investments for entitlement purposes. They are now assessed like shares, term deposits or bank accounts, improving the fairness of the age pension income test.
The rule change at that time also impacted some annuities for Centrelink’s income test assessments. It’s important to note there is no change to superannuation rules, nor to the way Accounted Based Pensions work. The change is only to social security assessment rules.
(Please note that there have been further changes to the income stream rules that apply to certain pensions as from 1 January 2016. These are not dealt with in this article. Details can be found on the Centrelink website – Income test for pensions page.)
The deeming rules
Under the deeming financial investments are assigned a deemed rate of income regardless of the actual return of the investment. The current deeming rates, which are how Centrelink assesses the income various investments produce, are listed below. They are applied to the total market value of all of the financial investments someone who receives Centrelink benefits owns.
| Threshold | Deeming Rate | |
| Single Person | Up to $62,000 | 0.25% |
| Over $62,000 | 2.25% | |
| Pensioner couple (combined) | Up to $103,800 | 0.25% |
| Over $103,800 | 2.25% | |
| Non-pensioner couple (each) | Up to $51,900 | 0.25% |
| Over $51,900 | 2.25% |
The change was introduced to encourage individuals to choose retirement investments based on the merit of the investment itself. This is expected to take pressure off the social security benefit with more efficient investment outcomes.
How were Account Based Pensions treated prior to this change?
Previously, Account Based Pensions were assessed under the income test using a “deductible” amount methodology. The actual income received was reduced by a “deductible” amount, with any net positive amount included under the income test. The deductible amount was determined by dividing the starting balance of the ABP by the recipient’s then life expectancy. Using this formula, the deductible amount could exceed the income received, meaning the assessed income test amount would be zero.
Of course, the account balance is still assessable, something that’s not changing.
Were all account based pension owners caught by these changes?
Many people who had an Account Based Pension as at 1 January 2015 weren’t affected by this change. The way the rules now apply, qualification for the pre-2015 treatment on an ABP will continue until that pension ceases.
It’s important to take care to ensure you don’t inadvertently trigger a new Centrelink treatment of the ABP in the future. Qualification for (and benefit from) that pre-2015 treatment, may still be delivering financial benefit.
There are three major scenarios that could mean an existing Account Based Pension would be assessed under the new rather than existing rules. For instance, the new rules will apply if –
- you add new funds to an existing Account Based Pension;
- you move your Account Based Pension to a new super fund provider; or
- an existing recipient of an Account Based Pension dies and a beneficiary elects to continue to receive the death benefit in the form of an income stream.
In addition, it is important to think about how these changes could impact you if your Centrelink eligibility is currently assessed under the assets test. The new treatment could mean Centrelink uses the income test, rather than the assets test, to assess your eligibility, which could reduce your income support payments.
ContinuumFP is available to assist you understand the changed rules
Continuum Financial Planners Pty Ltd continuously work to ensure that clients are up to date with all relevant changes. Unsure of how this legislative circumstance will affect you? Arrange an appointment with your ContinuumFP adviser to discuss your situation. Not already a client of Continuum Financial Planners Pty Ltd? Call us (on 07-34213456) or use this Book A Meeting link to arrange an appointment with one of our team. We work to the mantra that ‘we listen, we understand; and we have solutions’ .
For personalised, professional wealth management advice make us your first point of contact.
(Originally published in October 2014, this post has occasionally been updated/ refreshed, most recently in August 2024.)
