How the latest changes to Account Based Pensions affect you
Many retirees choose to receive their income stream from their superannuation through an account-based pension (ABP).
The benefits are clear: ABPs are tax-effective, as you don’t pay tax on your investment earnings. And once you reach 60, the actual income payments are all tax-free. Depending on your circumstances, you may even be eligible to receive a part or full Age Pension. Alternatively, you may be eligible for a Commonwealth Seniors Health Card (CSHC), giving you access to discounted medical expenses, and a range of concessions on things such as transport, utility bills and entertainment.
Previously, Centrelink didn’t include the income payment below the deductable amount from ABPs in its income test. But since 1 January 2015, if you become eligible for the Age Pension, Centrelink will assess your ABP under its deeming rules.
This means that it will assess the income that your ABP is assumed to earn, not what it actually earns1. If you earn over the threshold (currently $160 for singles and $284 for couples) it could mean that you won’t be eligible for any Age Pension or a CSHC.
These new rules only apply to people who set up an ABP after 1 January 2015, or who commute or rollover to different ABP products, or you lose your entitlement to the Age Pension after this date2.
How much can you earn?
To be eligible for a Seniors card and a partial Age Pension, single people can currently earn a taxable income of up to $51,500. Meanwhile, couples can earn a combined income of $82,400, or $103,000 if they are separated due to illness.
If you have a dependent child or children, the threshold will increase by $639.60 for each child.
The thresholds are indexed in line with the Consumer Price Index on 20 September each year3.
What can you do?
If you think that the new laws will mean your taxable income could be above these thresholds, there are a couple of things you can do. Depending on your circumstances, you may be able to restructure investments to reduce adjustable taxable income. For instance, you could invest in an insurance bond which is internally taxed at 30% or invest through a discretionary trust to distribute income to other beneficiaries of the trust.
Alternatively you may wish to roll an ABP back to super4 because super is not captured by the Centrelink definition of income for the purpose of CSHC.
Want to know more?
Of course, you should always seek advice and consider your specific financial needs and situation before making any changes to your retirement funds. To be sure you’re making the right financial decisions, speak to the experts on |03| 8651 6555.
1. Human Services (2014) Deeming http://www.humanservices.gov.au/customer/enablers/deeming
2. Human Services (2014) Older Australians http://www.humanservices.gov.au/corporate/publications-and-resources/budget/1314/measures/older-australians/29-10728
3. Money Management (2015) Deeming of account-based pensions for the CSHC http://www.moneymanagement.com.au/professional-development/capability/financial-planning/deeming-of-account-based-pensions-for-the-cshc?mid=f880364aa6&mid=adc851f9c5&utm_source=Cirrus+Media+Newsletters&utm_campaign=1650f092f6-Money+Management+Newsletter+-+201501140939&utm_medium=email&utm_term=0_fe913f1856-1650f092f6-60259269
4. Money Management (2015) Deeming of account-based pensions for the CSHC http://www.moneymanagement.com.au/professional-development/capability/financial-planning/deeming-of-account-based-pensions-for-the-cshc?mid=f880364aa6&mid=adc851f9c5&utm_source=Cirrus+Media+Newsletters&utm_campaign=1650f092f6-Money+Management+Newsletter+-+201501140939&utm_medium=email&utm_term=0_fe913f1856-1650f092f6-60259269