Changes to Account Based Pensions
An Account Based Pension is usually commenced from your accumulated superannuation when you retire. In some cases you can start one with a lump sum of your own money (for example, from the proceeds of selling a property). With an Account Based Pension you can choose how to invest your money, say in shares or cash, but the federal government has rules on how much you must take out each year as a minimum. Meeting this requirement ensures your earnings on your super pension account remain tax-exempt. These withdrawals can be taken monthly, effectively like a salary, or even annually. For a 65-year-old person, assuming a balance of $250,000, the minimum he or she would have to withdraw is 5% ($12,500). This percentage increases with age. |
However, new legislation changes how this income will be treated by Centrelink.
Deeming rules will apply
Account Based Pensions are now classified as ‘financial investments’. As such, those established after 1 January 2015 will be assessed under ‘normal’ deeming rules. This means that all financial assets will be assessed under the same rules.
What is important to note is that the ‘old’ rules are kept in place for existing pensions, so if you already have a pension in place, then nothing changes. However, if you swap it (rollover) to a new pension after 1 January 2015 then it will be impacted by the new rules.
Who is affected?
Remember that the deeming rules assume your financial assets are earning a certain amount of income, regardless of the income they actually earn. However, it is still ‘Income’ either way as far as Centrelink is concerned.
If your Age Pension entitlement will be based on the ‘Assets’ test, the changes should not make any difference to you. However, as new pensions (in most cases) will be deemed to earn more than they would have under the old rules, there is a point when the income assessed might be higher than the assets assessed.
What should you do?
If you are going to retire soon, you should contact your financial planner as it may be worth establishing a pension prior to the commencement of the new rules. If you already have an Account Based Pension, reviewing it and making any changes before 1 January 2015 may put you in a better position going forward.
Sources:
Budget 2013-14: Superannuation Reforms - Extending the normal deeming rules to new superannuation account-based income streams http://www.humanservices.gov.au/corporate/publications-and-resources/budget/1314/measures/older-australians/29-10728
Minimum annual payments for super income streams http://www.ato.gov.au/rates/key-superannuation-rates-and-thresholds/?page=8