Changes to deeming rules

Who will be affected by 1 January changes to deeming rules?

Changes to deeming rules

Changes will be made to the assessment by Centrelink of account-based pensions but who will it affect and how? SuperRatings’ Jeff Bresnahan explains.

The changes to the deeming rules for the Age Pension income test, which are due to take effect from 1 January 2015, may have significant implications for any individual currently in receipt of the Age Pension. But what exactly is due to change and if you think it may affect you, what should you do about it?

The current treatment of account-based pensions (which are the majority of pensions paid by superannuation funds on a member’s retirement) generally results in better financial outcomes when compared to other investments. This is largely due to the income received from pensions being exempt from the Age Pension income test.

From 1 January 2015, the income deemed to be received from any new account- based pension will be included in the definition of ‘financial assets’ for Age Pension assessment purposes. This means that the deemed income will be included in the Age Pension income test and may reduce the level of the Age Pension which an individual receives.

However, if you commence, or have commenced, an account based pension prior to 1 January 2015, the news isn’t all bad. The Federal Government has confirmed that it will maintain the existing rules, which means that the income deemed from an account-based pension will only count towards the Age Pension income test for pensions commenced after 1 January 2015. This means that for those people already receiving income from an account-based pension prior to this date, there will be no impact on Age Pension payments.

As always, exceptions do apply and the Government has indicated that existing rules will only be maintained if there is no change to the existing account-based pension after 1 January 2015. What this means is that if an individual changes their pension product in any way, or changes the fund which provides this pension, the income received from the altered pension product will subsequently be assessed under the Age Pension income test and may result in a reduction in the amount of the Age Pension received. 

Given that the changes commence on 1 January 2015, any individual currently receiving an account-based pension has a three-month window to review their existing arrangements to ensure they are comfortable with the pension product they currently have. In particular, individuals should review their product provider, the pension’s fee structure and the investment returns they have been receiving to ensure these are appropriate for their circumstances. It is particularly important to ensure that a current product meets an individual’s needs for the medium to long term, given that any changes made to the product after 1 January 2015 will impact on that individual’s Age Pension entitlement. Where individuals believe they should move to another product, this must be done prior to 1 January 2015 to maintain the current Age Pension income test exemption.

SuperRatings offers a pension product comparator through its SuperSavvy website so individuals may wish to use this as a first step in reviewing the competitiveness of their pension product.

As with all comparisons, individuals must consider their own financial situation when selecting the product that is right for them. Given the complexities of age pension entitlements and the associated income test, individuals may also wish to consult a qualified financial adviser to discuss the impact of these changes on their specific circumstances.

Read SuperRatings disclaimer.





    COMMENTS

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    Mike
    18th Nov 2014
    10:34am
    What exactly do they mean if a person changes the pension product in any way. Does it mean if you are currently taking , say the minimum amount, but then decide you need more pension, and say change it to , say 5% , it will then be liable to be assessed under the new rules, or if say you make a withdrawll from the capital and your pension income drops?
    Tom Tank
    18th Nov 2014
    11:53am
    Yes Mike, it will be considered that you now have a "new" pension product and the amount in that product will be part of the assessment in determining your age pension entitlement.
    Shifty isn't it.
    Travellersjoy
    18th Nov 2014
    12:20pm
    The article says that you would need to change provider or product to be penalised. Then you would have a 'new' pension.

    Not about how you take your money out of your account. Changing your draw down does not constitute changing your product, is not a 'new' pension, and would not be affected.
    MacI
    18th Nov 2014
    3:44pm
    Mike - Tom Tank is wrong. It only applies if you wind up your current pension product. For example, you may want to amalagmate two pension products to save on adminstration fees. In which case you would need to wind up the two existing products and start a new product. The new product would be subject to the new rules.

    How much you elect to draw from your existing product is entirely up to you provided that you draw at least the minimum amount required according to your age.

    Assuming that your current pension product allows the flexibility you can even change how your money is invested within the product without being assessed within the new rules.
    Anonymous
    19th Nov 2014
    7:56am
    My interpretation is that a changing the amount you draw down from your current pension fund will NOT change anything.
    It is only when you move from one fund to another that the will invoke the new rules.
    Teunis
    18th Nov 2014
    10:37am
    seems to me the government are trying their best to get folk not to invest in super. The more you try to look after yourself the hard the government will make it for you. Where is the incentive.
    bartpcb
    18th Nov 2014
    11:36am
    What is so surprising about this? Right wing governments have always attacked those that can't fight back. They have no use for the elders of society unless those elders are still in the workforce paying taxes. It will be a government like this one that introduces Compulsory Euthanasia for elders who are deemed to be a drain on the governments coffers.
    MacI
    18th Nov 2014
    3:48pm
    bartpcb - This change was actually introduced by the Labour government.
    particolor
    18th Nov 2014
    12:02pm
    Stamp on My left Foot now ! The toes on the Right Foot are throbbing !!
    KSS
    18th Nov 2014
    12:57pm
    "What this means is that if an individual changes their pension product in any way, or changes the fund which provides this pension, the income received from the altered pension product will subsequently be assessed under the Age Pension income test and may result in a reduction in the amount of the Age Pension received."

    This would seem to indicate that if you change the drawdown or remove a lump sum it could well be deemed a change to the product and consequences applied. So if changes such as these seem likely in say the next 3-5 years better to make the changes now. Get some proper advice and don't rely on this or any other article or us commentators:-)
    Gwenwiver
    18th Nov 2014
    2:08pm
    So does that mean if I withdraw, say $10,000 (ie a lump sum), after January 1st 2015, the new provisions will apply. That seems to indicate that if one has any thing like credit cards to pay off and want to take out a lump sum to do it they should do it prior to January 2015
    Anonymous
    18th Nov 2014
    4:15pm
    No Gwenwiver you can draw down what you like long as you don"t start a new account based pension after January 1, withdrawals won"t effect it.
    Clare bear
    18th Nov 2014
    1:03pm
    Thanks for this information about such an important issue. The other thing I have been told by centrelink is that if I should come off aged pension for some reason after 1 January 2015, and resume the aged pension at a later date, then the new provisions will apply. Anyone in this situation may want to check with centrelink
    trired
    18th Nov 2014
    1:29pm
    Beware, this deeming changes will not affect pensioners but will affect any couple with only one person on a pension, the deeming will be on all of the Super of the other half of a couple who is not of pension age. I will lose $40.00 per week when the new deeming rates start 1 January.
    Having voted Liberal for over 40 years I will be voting for them in the future. They seem to have no regard for pensioners or serving or ex Military Personnel and now the Chinese will be buying all our land.
    particolor
    18th Nov 2014
    3:12pm
    Learn Mandarin !.. Its easy look ! ..*&@% @^%)*!()$#@ *$%#@(!)&*%
    older&wiser
    18th Nov 2014
    5:15pm
    Think you missed a word......Having voted Liberal for over 40 years I will NOT be voting for them in the future
    MacI
    18th Nov 2014
    5:43pm
    trired - The Labor government introduced this idea - the reason you heard no noise from them when the leglisation was introduced by the current government. A pox on both parties in this instance!
    Gerg
    18th Nov 2014
    1:59pm
    So - I put money in a bank and get interest, that interest is income. I put money in a SMSF and withdraw the earnings along with principal - now the government decides to treat the whole amount of the pension withdrawn as income. That is like treating the bank deposit amount as income when it is withdrawn. How economically absurd and deceitful and plain old money grabbing.
    particolor
    18th Nov 2014
    2:10pm
    But wait a Minute ? You paid roughly 25% Tax on that Money You are putting in the Bank ! Now shouldn't You be entitled to recover that loss of 25% before any Deeming on it is even considered ? Looks like a ONE WAY Street to Me ??
    MacI
    18th Nov 2014
    5:11pm
    Gerg - The government does not treat the whole amount of the pension as income. It is the 'deemed' amount that is considered as income. The actual amount that you draw or earn is irrelevant. For example, applying current deeming rates, if a couple has $286500 in their ABP then their deemed income is $8833 assuming no other 'deemable' assets. Not that I'm saying this is good news. I have two points to make about the foregoing:

    1. I use $286500 deliberately as it is the amount a couple can have in assessable assets under the Assets Test and still receive the full Age Pension. If I've done my sums correctly then with the new Income Test a couple with these assets would be entitled to approximately $36.50 per fornight less. But wait, it gets worse. Let's assume that the deeming rates increase by 1% then a couples fortnightly pension would be $165.90 less than the Full Aged Pension. It could get even worse - applying the 2007/2008 deeming rates - a couple would receive $315.90 less than the Full Aged Pension.

    2. The current Income Test does penalise if you draw a lump sum from an ABP. Applying a complicated formula related to your statistical life expectancy when you started an ABP and how much you initially paid for your ABP the amount of the income that is drawn from the ABP 'assessment free' is reduced. I reckon that this new Income Test may encourage people to spend more quickly that they may have under the current scheme to reduce their assets in order to qualify for the Full Aged Pension. With a reduced Aged Pension they may have no choice!

    Obviously, if your on the Aged Pension you want to stick with the ABP you have. I'm one of the poor sods who miss out (by 2 months).

    My final observation is don't expect Labor to make a noise. It was them that introduced this idea.
    Gerg
    18th Nov 2014
    6:42pm
    KCI, thanks for the explanation of the deeming rules, I must have got this mixed up with the calculation now proposed for seniors health card from 1 Jan. That is the one that treats all withdrawals from super as income for determining whether the combined income is over $80k per couple. As "income' it is now to include all super withdrawals the test will be failed by many who apply post 1 Jan. and that was introduced by the current govt in the last Budget
    tj
    18th Nov 2014
    2:51pm
    Another point to consider is that the super funds know that if you switch to another fund after Jan 2015 you maybe penalized ,maybe just maybe UP GO THE FEES as you are a captive audience
    tj
    18th Nov 2014
    2:57pm
    Also ,another thought,will this prohibit competition among st the funds with their fees
    fastbucks
    18th Nov 2014
    2:56pm
    I am 61 in March 15, and am about to start an transition to retirement pension. How will this affect me when I turn pension age?
    MacI
    18th Nov 2014
    3:59pm
    pongping - My situation is much the same as yours except that I am already fully retired. I miss out by 2 months (65 in Feb 2015) on having the benefit of the current income deeming arrangements. There is no way around it.
    Anonymous
    18th Nov 2014
    4:20pm
    Start your transition to retirement pension before the 1st of January 2015 and you will not be effected. They are easy to commence you only need to print and sign a document called TRANSITION TO RETIREMENT PENSION which can be pulled off the internet just make sure you sign and date it before the 1st of January there is nothing more to do.
    MacI
    18th Nov 2014
    5:16pm
    ponping - ROBO is wrong. There are two requirements - To start an ABP (Transition or otherwise) and to be in receipt of a government welfare payment, e.g. Aged Pension, Disability Pension. I assume the latter does not applt to you.
    fastbucks
    18th Nov 2014
    5:26pm
    Now I am confused. You are saying that no matter what I do now, even if I have a pension by 1 Jan, I will not avoid the new deeming rules. Is that right?
    MacI
    18th Nov 2014
    5:35pm
    pongping - That's correct. I will be 65 next February and therefore don't qualify for the Aged Pension prior to 1/1/2015 so my current Account-based Pension will be subject to the new Income Test.
    fastbucks
    18th Nov 2014
    6:45pm
    crapus!
    fastbucks
    18th Nov 2014
    7:13pm
    Hockey & co want us to work till 70, and then preferably drop dead.
    niemakawa
    18th Nov 2014
    7:19pm
    The 'old" three score and ten measure.
    Anonymous
    19th Nov 2014
    8:07am
    Please people get your facts right...no good blaming this government Labor changed the rules

    It was Labor who changed the rules and the current government is implementing them.

    "In April 2013, the former Federal Labor Government announced new budget measures including a proposed
    deeming rule change to Account Based Pensions drawn from superannuation funds."
    MacI
    18th Nov 2014
    3:54pm
    There is much misinformation being propagated on this forum. Please note the following.

    The following events on or after 1 January 2015 will result in a pre 2015 ABP losing its grandfathered assessment and the new ABP will be deemed:

    * Consolidating multiple ABPs;
    * Changing providers;
    * Winding down a self-managed superannuation fund (SMSF) and rolling the funds to another superannuation fund;
    * Rolling an existing ABP to an accumulation account, combining with the funds retained in an accumulation account and re-starting a new ABP;
    * Adding or removing a reversionary beneficiary;
    * Ceasing to receive an eligible Income Support Payment, e.g. Aged Pension;
    * Using superannuation death benefits to commence a new ABP for a non-reversionary beneficiary.
    Gerg
    18th Nov 2014
    4:18pm
    is all of this fact? i.e. has the law been passed and got Royal Assent?
    it seems that any change to current arrangements are to be caught therefore the point made about stifling competition by effectively ruling our changing funds is a likely consequence. Strange that this is allowed by the current govt which is supposed to encourage competition and clearly wants people to be able to change mortgage providers. And, it still deems income when the funds maybe either income or capital
    BElle
    18th Nov 2014
    4:01pm
    Yet another "Broken Promise". And to think this Prime Minister called Julia a Liar. His audacity leaves one breathless. I am quite certain that none of my peers are aware of this change, it has been slipped past the radar in a very underhanded manner. Why are we not hearing about this in the media. They are quick to jump on other issues, but it seems pensioners are Fair Game when it come to being ripped off.
    Anonymous
    18th Nov 2014
    4:23pm
    Need to get your facts correct this change was brought in byn the Liar Gillard nothing to do with Liberals.
    Gerg
    18th Nov 2014
    4:51pm
    and which government introduced the deeming of super as income for the cwth seniors health card? wasn't that in the last Budget - post Tony's election
    MacI
    18th Nov 2014
    5:19pm
    BElle - This was the Labor government's idea hence the reason you heard no noise from them when it was passed into legislation.
    Anonymous
    19th Nov 2014
    7:58am
    The information has been out there for some time. Many people I know do not buy newspapers or listen in any greath depth to radio or TV and hence are quite surprised when they finally do find out.
    Bangles
    18th Nov 2014
    5:05pm
    Reading all the comments it seems there are a lot of you who fully understand what is about to occur, I don't, could someone explain to me what is a Pension Product Currently I receive a part pension and also receive an amount each fortnight from my super. The super payment increases by the CPI each year - amounted to $10 per fortnight this year. The Pension and Super payments are paid into the one and only bank account I have. Will the yearly increase mean my Pension Product has changed? Also I will be out of Australia next year for 8 weeks visiting my children. I have been told my pension payment will continue but the energy supplement will cease after 6 weeks and I notify Human Resources when I return and the supplement will be reinstated, as this will be after January will resuming the supplement mean a change the the Pension Product
    MacI
    18th Nov 2014
    5:28pm
    Bangles - What the author means in regard to a Pension Product is something like an Account-based Pension which is what is usually started when you move from the accumulation phase of your Super, i.e. when you are contributing to Super, to the Pension phase, i.e. you are drawing an income from your Super. Provided that you keep things as they are, i.e. you don't draw all of your funds from your current Super fund and start a new 'Super' fund then you will be okay.
    Sallad
    18th Nov 2014
    6:09pm
    Have read all the interesting comments on this topic and having some knowledge of what has been going on I agree with KCI on all counts except one point. Labour DID include this change in their final May budget PROPOSAL but received so much flack and objections that they did not table it in Parliament. It was never tabled at all. When the Libs came in they saw this as a great opportunity to save money at pensioners expense they re introduced it claiming it was a Labour backlog that needed cleaning up. It was passed in the lower house and held up in the previous Senate for several months before the Greens allowed it through in March THIS YEAR. I was one who objected strongly against it (there are several posts of mine in other similar topics on this website)...BUT to no avail. Now all pensioners with ABIS (Account based Income streams) have to face the music. In the Libs first Budget they proposed several nasties for Retirees but their major Social Services Bill remains stalled in the Senate. An amended version that included deeming of ABIS in the CSHC Income test went through the Senate only yesterday. So most of what has been discussed in this post today will also apply to CSHC holders.
    MacI
    18th Nov 2014
    6:27pm
    Sallad - I knew that the Labor didn't introduce the change. Figured they chickened out being to close to an election. I didn't realise that they opposed this in opposition so I stand corrected though I must admit I didn't hear Labor make much noise about it. I'm dumbfounded that the Greens let it through.
    Sallad
    18th Nov 2014
    6:44pm
    Spot on KCI. I bombarded all their MPs and Ministers at the time with emails showing how the lower income earners would suffer most with the change.....to no avail.... except that they did not table it. When the Libs came in, re introduced it & passed it in the lower house I bombarded all the Senators (Greens, Labour, Libs), at the time....again to no avail. No wonder I am so disillusioned with all politicians. They only look after themselves.
    niemakawa
    18th Nov 2014
    6:30pm
    Well I'm deemed, who would have thought!
    *Imagine*
    18th Nov 2014
    6:59pm
    Points of clarification to the above article. Your Superannuation balance is already counted as an asset by Centrelink but is not deemed to be making any income, a bit like a car or a boat. This is what is about to change on 1 Jan 2015 (this is not a three month window as stated)

    Presently the account based pension (ABP) drawn from superannuation is generally not counted as income by Centrelink, unless you draw down a large amount or you started your ABP early. C/L use a “relevant number” based on your life expectancy to work out how much of your ABP is not counted as income. This “relevant number” is fixed from the day you start the ABP as is the purchase price of the ABP which is also used in the calculation. If you start your ABP early the number will be bigger because your life expectancy between start of ABP and death will (or should) be longer. This means that more of your ABP is counted as income and you receive a correspondingly lower C/L Age Pension.

    It appears that C/L are dumping this confusing life expectancy calculation and replacing it with a deeming approach, you must tell them every year how much the balance is. If you have say $190,000 in your super account and you are between 65 and 75 then you must draw down 5% each year so your ABP is 5x190,000/100= $9,500. Under the old rules this would, in most cases, be seen as your own money and not income. Under the new rules C/L deem the whole $190,000 and determine that you have received $5,930 for nothing and your pension is therefore reduced.
    Assessable income = ($48,000 * 2 per cent) + 3.5 per cent * ($200,000 - $48,000) = $5930
    All this is well explained in the fact sheet attached to: https://www.dss.gov.au/our-responsibilities/seniors/benefits-payments/age-pension/deeming-information
    The rationale is, that this new approach brings equality. A pensioner who has assets in the bank that is presently deemed, is, they say, worse off than a pensioner whose assets are in super, that previously was not deemed. They do not take into account the fees paid in super - often amounting to more than 3% of the asset. Nor do they take account of the years when super makes nothing or goes backwards.
    Result: the super holder would be better off winding up the ABP, having a holiday, upgrading the car and putting the remainder in the bank to supplement the aged pension. The outcome is the tax payer has to pay out even more money to support the age pension - clever eh! They say that “There is no longer any nous in the House!”
    niemakawa
    18th Nov 2014
    7:35pm
    Again it will depend on the asset type in the super. fund. It is possible to earn income over and above the deeming rate, and that amount (over) will not be included in the income tests. Although if it is rolled into your super, then of course the balance will increase and so will be caught in that net somewhere. Once people start withdrawing funds and spending it on consumer items then you can bet your bottom dollar that they will find some way to assess that as well.
    *Imagine*
    18th Nov 2014
    7:16pm
    Sorry, I put in $200,000 instead of $190,00 in the formula. It should read:
    Assessable income = ($48,000 * 2 per cent) + 3.5 per cent * ($190,000 - $48,000) = $5930
    Justsane
    19th Nov 2014
    1:25am
    To KCI & pingpong. This change does not affect me, but I have been reading up on it because it affects someone I know. I can't pretend that I know all the ins and outs of account based pensions, but what I do know is that, if you are going to just miss out because you turn 65 after Ist January 2015, you can go on Newstart (as well as start the account based pension) before 1st Jan, then your super is subject to the old rules.
    Sallad
    19th Nov 2014
    1:41am
    To Justsane: Problem with Newstart is that the assets test is quite severe. Single homeowner assets cut off point is $202,000, whilst a homeowner Couple's cut off is $286,500 (combined). Assessable assets include ABIS (Super) Ac Based Pension Income stream balances, market value of your home contents, cars, bank ac balances etc.
    DSP (Disability Support Pensions) & Carer Payment however use the higher assets limits as for the Age Pension.
    Not Senile Yet!
    19th Nov 2014
    11:00am
    This is about saving the Governments Billions in Pension Payments...nothing else!!!
    With the Baby Boomers all set to retire both Parties have colluded to minimise the impact on their outlay for Pensions!!!
    It is a cunning and devious way to reduce the amount they have to pay out in Pensions....nothing less!!!!
    The fact that inflation has eaten away the actual buying value of the Pension seems irrelevant to them....they don't care!!!
    They spent the money put away to provide for the Baby Boomers in the Ninety's (Both Parties had to agree to do this) to boost a failing economy and create jobs...( ie New Parliament house funded by same)......Now they have no reserves to pay for the doubling of their Pension Bill!!!!!
    Deeming is just a way to reduce the Pension even further....nothing less!!!!
    It hits the poor not the rich!!! Deeming only hurts if you are counting on your Pension to survive!
    Very Cruel act by both Parties to minimise their debt and impacts on the very people who provided them with their current tax base by providing the Government with kids to tax.
    Both Parties are more interested in buying Planes (Billions worth) and building even more Super Highways as they increase the tax on fuel.
    Stop voting for the MORONS!!!!
    They are selling all of us out and turning us into Little America!!!!
    Vote both the Big Parties out of OUR Parliament before it too late!
    particolor
    19th Nov 2014
    4:49pm
    I very Much liked that !!..
    See if Murdoch will publish it ??
    Bye for Now Not Sen...
    trired
    25th Nov 2014
    3:54pm
    Have found an interesting article:
    The legislation to change the deeming rules was introduced by the then Labor Government under the superannuation reforms of April 2013 and was one of the bills adopted by the Coalition Government after its election. You can find out more by visiting Strongersuper.treasury.gov.au.

    I am assured by Centrelink that I will lose $83.00 p/f because my husband and I are on an income stream using his Super, I am on Aged Pension - he is not, he is however an ex 20 years Serviceman and his DFRDB , of which most was paid back in tax when he worked in a Correctional facility affects my half of the Aged Pension.
    Why did the Coalition adopt the Policy and why are some people excluded in the "GRANDFATHERING (apologies for using that word) when our living expenses are built around the money we receive now..
    HaHaHa
    4th Feb 2017
    7:08am
    Past dumbed down Government led by (Centrelink boffins) have deemed gifting to save pension payments. Gifting for first home buyer deposits have been reduced drastically, $70k by me personally. Housing construction is therefore reduced. GST and income tax on lost housing construction (in the order of maybe 10 times the deposit gifted) far outweigh the meagre Government savings!!! Good one boys.....saved the icecream, lost the choklit shop.
    LindyLou
    24th Mar 2017
    12:56am
    Why are we being given info on changes "coming into effect" on JANUARY 1 2015?
    What is happening NOW?
    particolor
    24th Mar 2017
    7:09pm
    Dunno Lindy ?? But I'm Deemed to have Nothing !! And that's the way the Government likes it !! :-( :-(


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