Centrelink Change in Assessment
Thursday, October 16, 2014
People who receive the Age Pension from Social Security need to be aware of an important change occurring form 1st January 2015. This is to do with the way income streams from Allocated Pensions or Account Based Pensions are assessed under the income test when started after this date.
Currently the income you receive from your Account Based Pension is assessed differently than income from your other financial assets. Under current rules the account based pension is assessed more favourably, and it is considered that part of the income stream being received is a return of some of the capital that had been saved over time, and therefore not all of it is considered as “income”.
On the other hand financial assets of all other types (oustide Account Based Pensions) are deemed, for a pensioner couple, at an annual income rate of 2% for the first $79,600 and 3.5% for the remainder. By way of example, a couple with half a million dollars of financial assets outside of an allocated pension, would be deemed to be receiving an income of $16,306.
So in this example if the half a million dollars is owned not as a financial asset, but as an account based pension the assessment would be different. Say the male member of the couple is aged 65, and they are receiving the minimum compulsory pension payment of 5% per annum. The income that will be received is $25,000 however there is write down of this because of the perceived return of capital. In this case the “deductible amount” is $26,968 and there will be no income assessed from this investment for Centrelink purposes. (note: perceived return of capital is a calculation based on the recipients life expectancy factor.)
Although this looks like a significant difference, it will not make a lot of change at the moment as this scenario will more than likely be caught under the assets rather than the income test because of our low interest rate environment.
If interest rates were to increase by 2% over the ensuing years look at the difference it makes to the way half a million dollars is assessed under deeming. $79,600 @ 4% and the remainder @ 5.5% takes the income to $26,306.
What this demonstrates is a pension fund now which is assessed as having a zero income could be effected to the extent of an income in excess of $26,000 per annum and would have a dramatic effect on the amount of age pension received.
Who will be effected? Any person who commences an account based pension after 1st January 2015 and receives an age pension benefit. What this means is that if you CHANGE your account based pension arrangements after this date by changing provider you will lose this current valuable assessment.
If you are currently not happy with your pension provider and thinking about making changes you would be well advised to have all the changes bedded down prior to this date.