A new way to beat Centrelink’s Age Pension assets test limit?

Centrelink’s changes to the Age Pension assets test limit in January 2017 cut off access to the Age Pension for many retirees, when the maximum value of assets owned to obtain the age pension was reduced.

If you’re a retiree and this affected you, you are probably still seething about it. Or, if you are about to retire, you might have only recently discovered that you exceed the asset test limit.

Well, 1 July 2019 might just turn out to be the answer to your problem – provided you are smart with the structuring of your financial position.

Let’s recap quickly. Back in January 2017, the Australian Government decided to reduce the asset test limit that Centrelink uses to calculate eligibility for the Age Pension, from $1,175,000 to $823,000 for a couple who own property. For a property owner who is single, this went from $791,750 to $547,000. Note, however, this asset test limit excludes the value of your primary residence and since then, the asset test limit has been indexed, so today it’s sitting a little higher than these amounts.

For a lot of people who sat close to these limits, they lost access to the Age Pension. The government did provide some grandfathering relief, with a cut-back version to try to prevent Armageddon for retirees, but anyone else just turning the qualifying age for the Age Pension was left in the dark.

Let’s jump forward to 1 July 2019. What’s about to change? Well, the government has amended its superannuation and tax legislation, and part of the new measures that have been released include a range of options for retirees with retirement income streams.

Like most things, with changes to superannuation, old ideas have an uncanny habit of reincarnation. Here’s an example: The Transfer Balance Cap of $1.6 million introduced on 1 July 2018, was really just a new version of the old Reasonable Benefit Limits, which used to be in place back in the pre-Howard era – with a few variations.

Today, the asset test exemptions with the Age Pension, which back then applied to guaranteed lifetime annuities, is making a comeback with a fancy new name: ‘Pooled Lifetime Income Streams’. Welcome back, old friend, it is like it is the year 2000 all over again!

Now like any reincarnation, or as any great tech entrepreneur will try to convince you, this time is it is ‘new’, ‘improved’, and ‘different’. Not really. To be honest we liked the old version, but like any Apple or Microsoft upgrade, we learn to live with the new version, despite transition frustrations.

So, what does this all mean?

  1. If you sit close to the Age Pension asset test limit and you invest a portion in one of these new, bright shiny ‘income streams’, then this could allow you to claim a 60% reduction of the Age Pension assets test limit, depending on a range of factors that you need to meet.
  1. Will this income stream product ever expire? If you manage to hang around as long as one of my favourite sea creatures, the sea turtle, who lives up to 150 years, you will continue receiving an income stream that massively outweighs the money you spent on buying this product. The money just keeps coming in the door and never runs out. We might not be able to match the sea turtle in terms of life expectancy, but if you do have a history of longevity in the family and are likely to live longer than the average life expectancy age, this might be a worthwhile consideration.

So, what are the downsides? Any money you put into this product you may end up saying ‘Adios’ to; it is likely you will never have access to this capital again, and your estate will receive zip too. So there will likely be a need to balance these combined objectives.

The great news is, there are some solutions.

Like any great newfangled investment product or idea, it is really important you don’t dash out and try to do this yourself. This area of investment is incredibly complex and a massive amount of modelling and analysis needs to be done. So before you jump into a change in strategy, I recommend you dust off that Y2K era Motorola Razor mobile phone and give AJ Financial Planning a call.

How to complete Income Stream Review form for Centrelink Age Pension – Human Services

The age pension is a great benefit that is almost essential to ensuring that many elderly Australians do not live in poverty. The pension in essence allows them to receive a constant income to cover the basic essentials of life throughout retirement. 

With the advent of superannuation just over 20 years ago, many retirees now will also have other sources of income streams to supplement the Centrelink age pension. Unfortunately however some of the forms from Human Services / Centrelink can be confusing. So in this article, and through more in the coming months, we will try to demystify some of these forms for you.

The first form we will look at is the Income Stream Review Form. 

This form is usually sent in August every year to people who are already receiving a retirement income stream. An income stream can be from an annuity that you have purchased, from an account based pension, from a Self Managed Super Fund (SMSF), or another superannuation account or from another retirement product.

This form is simpler than the other retirement forms that Centrelink has, as most of the complicated details have been completed on the Details of Income Stream Product form (SA330) (http://www.humanservices.gov.au/customer/forms/sa330). Even still, it can be confusing if you haven’t done the form before. So let’s begin….

To explain please refer to the picture below along with these instructions. I have labelled the six boxes with the letters A to J. Please note that sections A, B, C, F, G, H will usually be pre filled by Centrelink and you will not need to change the pre-filled information.

Product Type (A): This section describes the broad product type category of your income stream. For most people this will be “Allocated Income Stream”.

Product/Provider Name (B): If you have a personal superannuation account (rather than a SMSF) this will usually have the product name such as “XXX super fund Allocated Pension”. If you have a SMSF it will likely just contain the term “Allocated Pension”. 

Product Number (C): If you have a personal superannuation account or annuity this will have the account number to recognise the specific account. This number is mainly used to differentiate this account from any other income streams that you may have now or in the future. If you have a SMSF you won’t have a product number as such, so it may have your name instead.

1 July Account Balance (D): Here you need to look at the end of financial year statements that you have received and put in the asset value of your income stream as at 30 June/1 July. If you have a personal superannuation/pension account with a company such as MLC or Australian Super etc, you just need to look at the account value as at 30 June on the statements they provide you. 

If you have a SMSF it is a bit more difficult, as this Centrelink form will likely be due before your SMSF accounts are completed. In this case Centrelink understand that many people won’t have completed their SMSF accounts and you should give your best estimate of your 1 July account balance (your financial adviser may assist you with this). You can then update Centrelink with the correct balance once your SMSF accounts are completed. Please note that if your SMSF has multiple members (a husband and wife for example) you should only put the portion of the SMSF balance that relates to you. For example if you have $200,000 in your SMSF and $150,000 is your portion and $50,000 is your partner’s portion, you should only write in this area just $150,000

Nominated Annual Income (E): Here you write the income that you plan to take in the next financial year. Of course situations change and you may need to take extra income during the year from your superannuation. In such a case, you can later advise Centrelink (within 15 days of the change) that you have drawn additional income above what you had previously written on the form.

For example if you draw an income of $1,000 per month you would write the total year’s expected income drawings of $12,000. If you take $500 per fortnight you would write $13,000 for the full year.

Product Type (F): This will be the same as A.

Product/Provider Name (G): This will be the same as B.

Product Number (H): This will be the same as C.

Commutation $ (I): If you have made any commutations during the year you should write the dollar value here. Most people will not have made any commutations during the year, so this will be $0.

Date of Commutation (J): Again, if you have made any commutations you should write the relevant date. If like most people you haven’t made any commutations you should write “N/A”. 

So there you have it, by following these steps you should now successfully be able to completed this Centrelink Income Stream Review form. If you need any further assistance however, please contact your financial advisor or contact AJ Financial Planning for a FREE no obligation consultation. 

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How Centrelink treat Income Streams from Superannuation

Are you receiving a pension from your superannuation?  Are you planning to apply for the age pension or are already receiving the age pension? If so, there are some important changes that are taking place from 1 January 2015 that may affect you. The current Centrelink assessment works as follows: Presently, when Centrelink looks at your personal situation, they look at your personal assets and the income you receive to determine how much age pension you can get. If you have assets or income above the minimum thresholds your age pension will be reduced by a set amount, until at a certain level (depending on a variety of factors) you will have too many assets or too much income to receive the age pension. Some assets have exemptions, such as your home, which isn’t counted for the asset test. Some income also has exemptions, or different ways that it is counted, for example:

  • Financial assets outside of super such as cash and shares are ‘deemed’ to receive a certain income, rather than you actually recording the income that you physically get.
  • Pensions from income streams have a certain level called the deductible amount (similar to the tax free threshold) where only income above this deductible amount is counted for the income test.

So what will change? Pensions and income streams from superannuation that start after 1 January 2015 will no longer have a deductible amount, and instead, will instead have the income deemed in the same way as other financial assets. Pensions started before 1 January 2015 will be ‘grandfathered’ and treated by the current legislation. What does this mean in practice? With the current legislation many pensioners have only a small amount of their superannuation pension counted for the income test, or even no income counted at all if they draw a smaller income than the deductible amount. Lets put this in an example. Barry is a 67 year old man who has $300,000 in super and he starts an account based pension from super today. Based on his age his deductible amount is $17,657 so only the account based pension income that he draws above this amount will be counted for the Centrelink income test. Under the new legislation Barry’s $300,000 will be deemed to receive income according to the current deeming rules. With the current legislation, if Barry is married the first $77,400 of his financial assets are deemed to receive 2% income, and the assets above this amount are deemed to receive 3.5%. Financial assets include cash, term deposits, shares, managed funds and – with the new legislation – your superannuation funds. So if we simplify things, and say that Barry has more than $77,400 of assets elsewhere then his $300,000 in superannuation will be deemed to receive 3.5% income i.e. $10,500. So how is Barry affected? If Barry draws more than $10,500 + $17,657 = $28,157 from his super fund as a pension he will be better off under the new legislation as he will have less income counted via the Centrelink income test. If Barry draws less than $28,157 from his super fund he will be better off under the current legislation. Every situation will be different, but in many if not most cases, the new legislation will be disadvantageous for pensioners and will result in a higher amount calculated under the Centrelink income test, and a lower age pension received. What can you do now? If you are looking to apply for the age pension in a few year’s time, or if you are currently receiving the age pension, you should consider the benefits of the following strategies:

  • Move assets held outside of superannuation into superannuation if you are eligible to make contributions
  • Look at the possibility of moving some superannuation assets from one spouse to another if this will give a beneficial result under the Centrelink income test
  • Reset your superannuation income stream or be sure to start it on 1 July 2014 or at least before 1 January 2015

Given the complex nature of these Centrelink calculations, we would recommend speaking to a financial adviser before making any decision that could significantly affect your retirement income. We invite you to contact our office on 03 9077 0277 for a free initial consultation with one of our financial advisers to discuss how the new Centrelink rules will affect you.