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Centrelink Rule Changes to Account Based Pensions- Get in Before it’s too Late!

Article By Adam Hurwood | | Financial Planning
From 1 January 2015, Centrelink’s deeming rules for assessment under the income test will be extended to new account-based pensions (ABPs). This will mean all financial assets are assessed under the same deeming rules.

If you are in receipt of a Centrelink income support payment or are likely to become eligible for one in the near future and you hold funds in superannuation, now would be a good time to consider commencing an account-based pension prior to 1 January 2015. This is to avoid being faced with a potential decrease in your pension payment due to the change in Centrelink’s rules.

The Current Situation

Currently, the income counted towards Centrelink’s income test from your account-based pension is the pension payments you receive for the year less a deductible amount. This usually results in a very low amount being considered income for centrelink purposes. The introduction of deeming may disadvantage pensioners as the deemed income is likely to be greater than the current treatment.

After 1 January 2015

Deeming Rules

From 1 January 2015, all new account based pensions will be deemed as earning a certain rate of income regardless of the actual return of the investment. The deeming rates listed below (and applicable from 4 November 2013) are applied to the total market value of all of your financial investments.

Act Now

Income streams (e.g. account-based pensions) in place before 1 January 2015, which are being paid to a Centrelink income support recipient at that time, will qualify for grandfathering provisions and will continue to be subject to the old rules for as long as the pension is being paid and the individual is in receipt of Centrelink income support. This is why it is smart to consider starting an account-based pension before1 January 2015 if you are of Age Pension age and qualify for income support.

Example: Couple receiving Age Pension before and after 1 January 2015

Let’s look at a couple with assessable assets of $279,000, of which $260,000 is in superannuation, $5,000 in is the bank and $14,000 is non-financial assets such as contents and car. Under the current rules, if the husband commenced an account-based pension as a 65 year old and took the minimum pension of $13,000 (5%) per annum then none of this income is assessed for Centrelink purposes and as their assets are below the assets test threshold, they would be eligible for the maximum age pension of $635.30 each per fortnight.

Using the same details, if the account-based pension was commenced post 1 January 2015, their age pension would be reduced by around $18 a fortnight. Whilst this may not appear significant, the current deeming rates are low, reflecting the current cash rates, so any increase in deeming rates will continue to reduce their age pension. Just a small change in deeming rates to 2.5% and 4%, which they were, only 6 months ago, would reduce their age pension by around $43 per fortnight, which is a substantial difference over the period of your retirement.

To discuss whether you would benefit from establishing an account-based pension before the 1 January 2015 deadline, or for more information on how the changes to Centrelink’s income test rules could impact on your circumstances, please contact your Altitude Adviser.

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