What will be the cost of your account based pension?

As part of the ongoing Centrelink and superannuation reforms, the Government is extending the Centrelink deeming rules to include account-based pensions that commence after 1 January 2015 (or before 1 January 2015, where income support is not yet being received). This means account-based pensions may have the same treatment as bank accounts which are classified as a financial asset for Centrelink purposes.

If you start an account-based pension after 1 January 2015, the new rules could mean you receive less income support from the Government (eg the age pension).

Are you planning to start an account-based pension after 1 January 2015?

If you start an account-based pension after 1 January 2015, your deemed income will include your account-based pension. In other words, the amount measured against the income test could potentially reduce the amount you receive as income support. After 1 January 2015, if you change from an existing account-based pension product to another product then this change will also affect you.

Are you already receiving income support?

If the answer is ‘Yes’, this could affect you. The good news is that if you have an account- based pension in place before 1 January 2015, and you’re already receiving income support, your payments will not be impacted by this change. However, if you change products after 1 January 2015, you will be affected.

Are you close to retiring?

If you’re of age-pension age and you’re receiving an account-based pension but have not yet applied for the age pension, you should seek advice. By applying before 1 January 2015, you’ll have the best chance of being eligible or optimising the amount you receive. Alternatively, if you’re receiving the age pension but have not started an account-based pension, then you should seek advice and possibly consider starting an account-based pension before 1 January.

How does this change affect aged care residents?

If you or a loved one is an aged care resident, then from 1 January 2015, not only can your age pension entitlement be reduced (if you’re subject to the rule change) but the deemed income could result in an increase in the means-tested care fee which applies from 1 July 2014.

How does this change affect your estate?

If you have an existing account-based pension that is not a reversionary pension (ie a pension that automatically transfers to a spouse or partner when you die) then these changes may affect you. You should seek advice and decide whether you should cease your existing account-based pension and start a new reversionary account-based pension before 1 January 2015.

About the income test deeming rates

Income support payments from Centrelink (such as the age pension) are subject to the income and asset tests. These tests determine the amount of pension you receive.

In relation to the income test, financial assets (such as bank accounts and shares) are deemed to be providing you with an income because of the interest earned. To measure this income, the Government uses ‘deeming rates’ that measure interest earned regardless of the actual investment return.

 Deeming rates

Family situation Asset threshold Rate of redeemed income
Single

$0 – $48,000

Above $48,000

2.0%

3.5%

Pensioner couple – combined

$0 – $79,600

Above $79,600

2.0%

3.5%

For further information about the new deeming rules and how they could affect you, make an appointment with a Bridges financial planner.