Changes to Centrelink Deeming Provisions are upon us
Are you considering a new pension or changing an existing pension
Under the current Centrelink deeming rules, individuals’ financial assets are deemed to earn a certain amount of income, regardless of what they actually earn.
Deeming is used to calculate income for Centrelink pension, benefit and allowance payments.
As Family Tax Benefit is based on taxable income, it is not affected by deeming.
The current thresholds are as follows:
- if you are single and getting either a Centrelink pension or allowance, the first $48,000 of your financial investments is deemed to earn income at 2% per annum and any amount over that is deemed to earn income at 3.5% per annum
- if you are a member of a couple:
o if at least 1 of you is getting a pension, the first $79,600 of your and your partner’s financial investments is deemed to earn income at 2% per annum and any amount over that is deemed to earn income at 3.5% per annum, or
o if neither of you is getting a pension, the first $39,800 for each of your and your share of jointly owned financial investments is deemed to earn income at 2% per annum and any amount over that is deemed to earn income at 3.5% per annum
Currently Account Based Pensions (ABP’s) and Transition to Retirement Income Streams (TRIS) derived from Superannuation are not included under the Centrelink deeming provisions. This is all set to change from 1 January 2015.
Who will be affected?
Individuals receiving Centrelink benefits who then commence an ABP from 1 January 2015.
Individuals who receive Centrelink benefits who have already commenced an ABP can use the grandfathering provisions and will be assessed under the existing rules (unless a new pension is commenced).
Reversionary Pensions
Clients with reversionary pensions already in place will not be impacted by this. A reversionary pension is a pension which automatically continues (or reverts) to a dependant of the member (beneficiary) after the death of the member who is in receipt of an ABP or TRIS. As the pension continues on with no changes, and no new pension is established, these pensions fall under the grandfathering provisions and therefore will not fall under the new deeming provisions.
More about reversionary pensions:
A pensioner may nominate anyone who is an SIS dependant to be their reversionary pension beneficiary. Under the SIS (Superannuation Industry Supervision) Act, the rules for dependants are:
o The spouse or de-facto (in practice) spouse
o Any child of the super member including step-child, adopted child or any child of the member born after the member’s death
o Any person deemed by the Trustee to be partially or entirely financially dependent on the member
o Any person with an interdependency relationship with the member
The reversionary pension beneficiary must be nominated on the initial commencement of pension documentation when the pension is commenced.
What about account based pensions not established with a reversionary beneficiary?
In Tax Ruling 2013/5 the ATO has confirmed that a non-reversionary income stream will cease immediately upon the death of the recipient unless the income stream automatically reverts to someone else.
The non-reversionary pension will need to be paid out as:
o death benefit lump sum – the beneficiary will now hold additional financial assets which be assessed under the new deeming provisions
o death benefit superannuation income stream – this is considered to be established after the death of the pensioner. It will therefore fall under the new deeming provisions.
Are you thinking about establishing an account based pension?
For anyone eligible to start an ABP and are thinking of establishing one, then maybe you should be considering establishing one prior to 1 January 2015. Particularly if you think you may be eligible for a part Centrelink pension. By establishing an ABP prior to 1 January 2015, you will be eligible under the grandfathering rules and therefore avoid deeming on the ABP amount.
Are you thinking about establishing a reversionary pension?
Our legal partner Supergeneration is also offering to amend deeds so that any existing pensions automatically revert to a surviving spouse. This will need to be done by 1 January 2015.
What should you do?
If you are thinking about establishing an ABP or TRIS, or changing an existing pension then speak to your financial adviser or Supervision SMSF immediately!!!
This is time critical and with holidays starting on the 23rd of December you must act now if this impacts you!!!
