Dealing with new pension deeming rules
What is deeming?
Deeming is where a certain level of income is assumed for your financial investments for tax and social security purposes, rather than considering the actual income.
Prior to 1 January 2015, deeming rules applied to the total market value of all your financial investments, excluding certain types of income streams. The actual rate applied to your income depended on your total income (ie deeming only applies if you are over certain thresholds) and whether you are assessed as single or part of a couple. Deeming rates were decreased in November 2013; however, the deeming rates are at historically low levels and have the potential to increase in the future.
Your deemed amount is counted as income by Centrelink and Veterans’ Affairs in assessing how much, if any, age pension you are entitled to.
What are the new rules?
While not directly affecting super or income streams, the new rules changed social security income tests and potentially your eligibility for such benefits.
Since 1 January 2015, any new account-based income stream are treated like similar investments such as term deposits, bank accounts and shares by having a deemed income which is used in the age pension income test.
What about existing income streams?
If you already had an income stream before 1 January 2015, some grandfathering of the existing rules is available if you meet all of the following:
- You were receiving a Centrelink or Veterans’ Affairs income just before 1 January 2015
- You were receiving a long-term (five or more years), asset-tested income stream that is account-based (some annuities may also qualify)
- You have continued receiving an income from that income stream since before 1 January 2015. That is, if you move your income stream to another provider or roll out your money to start a new, larger income stream, you will no longer be eligible for the grandfathering.
If you do not qualify for income support or are under pension age you will not be eligible for the grandfathering provisions.Grandfathering will also stop if the member dies or fails to meet pension rules (such as not taking a minimum pension).
Once a grandfathering criterion is not met, you will be subject to the new deeming rules and this cannot be reversed.
What about reversionary beneficiaries?
You can choose to nominate your dependant as a reversionary beneficiary which allows your dependant to receive your money as an income stream or as a lump sum if you die.
If the member (or primary beneficiary) dies and the income stream reverts to a reversionary beneficiary, the grandfathering applies for the reversionary income stream provided:
- The income stream automatically reverted to the reversionary beneficiary when the member died (that is, there can be no Trustee discretion or beneficiary choice involved)
- The reversionary beneficiary has continued receiving an income since the account was reverted
- The reversionary beneficiary is receiving an income from Centrelink or Veterans’ Affairs at and since the time of the member’s death
Once any of these criteria is not met, grandfathering provisions will not apply and you will be subject to the new deeming rules
So how does it impact you?
If you have an income stream and qualify for grandfathering provisions, there is no immediate impact for you unless you want to change or add to your income stream.
However, if you don’t qualify for the grandfathering provisions, your income stream is likely included in deeming rules and thus affect your Government pension entitlements.
If you want to roll more money into an existing income stream, an AvSuper Member Advice Consultant can discuss your options with you in person or over the phone.
Email: email@example.com | Local call: 1300 128 751 | www.avsuper.com.au