Concessionally assessed, deeming provisions… unless you are a trained financial expert, determining how the changes to Centrelink assessment rules will affect your individual circumstances can be confusing. The good news is, it doesn’t have to be and there are a number of ways to minimise the impact. This particular legislation however, does come with a deadline (January 1, 2015) so it is critical that you seek advice regarding your options sooner rather than later.
The changes: The rules in regards to how your pension is assessed for Centrelink entitlements changes on January 1, 2015. These changes became law on 31st March, 2014. Going forward, normal Centrelink deeming rules will now be applied to superannuation account-based income streams. Currently these income streams are concessionally assessed for Centrelink purposes, which results in higher entitlements. According to the rules, indefinite grandfathering will apply to any superannuation pensions that are in place by January 1, 2015.
Who will be affected?
- Retirees who change their superannuation product on or after January 1st, 2015 will be subject to the new deeming rules.
- Retirees who choose to commute their superannuation pension on or after January 1st, 2015 will be subject to the new deeming rules.
- Anyone looking to claim or getting close to qualifying for a pension, needs to do so before January 1st, 2015. If they are not receiving the pension by this time their super pension will be subject to the new deeming rules.
How will it affect you?
Currently, retirees whose Centrelink entitlements are affected by the income test, may choose to optimise their entitlements by investing in non-deemed investments, such as an account-based pension. An investment into an account-based pension entitles you with a non-assessable amount to reduce your chosen income payment. This often results in a much lower income assessment and, therefore, a potentially higher Centrelink entitlement.
From January 1st, 2015 new account- based superannuation pensions (started on or after this date), will be subject to deeming (applied when assessing a person’s eligibility against the Age Pension Income Test). This investment will be treated for example like a share or term deposit and may no longer be ‘income test friendly’.
This may result in a much higher income assessment and, therefore, a potentially lower Centrelink entitlement.
Those who may be most affected by the new deeming rules are individuals with additional income sources such as Government superannuation pensions (including pensions from overseas).
What to do:
The new rules will have a number of implications for many Australian’s and their retirement strategies. A good financial planner will be able to provide clarity around the issues and show you a range of likely outcomes. The important thing is to seek advice and plan now!