Who will be affected by 1 January 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.
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