10th Sep 2014
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New rules for reversionary pensioners
New rules for reversionary pensioners

With deeming rule changes for the Age Pension imminent, many pensions ‘grandfathered’ under existing rules could lose their special Centrelink exemption when the pensioner dies.

The main reason for this is because pensioners fail to make provision for a reversionary pensioner (the pensioner's spouse or partner) because of the impact this could have on their Centrelink benefits while they are still alive.

The fallout from this, in some instances, is the loss of desperately-needed benefits for the surviving spouse or partner, says Partners Wealth Group, Director, SMSF Consulting & Auditing, Martin Murden

Under the new deeming rules – which take effect from 1 January 2015 – a super pension commenced after this date will be treated the same any other financial asset. It will be deemed to earn income (using the percentages determined by the government) and will be included in the income test. What this means is that a super pension/annuity will continue to be treated under current rules if the:

  • pension is already in place on 1 January 2015
  • pensioner is also receiving social security benefits, such as Newstart, Disability Income Support Pension or the Age Pension on 1 January 2015.

Mr Murden says while provision has been made for grandfathering pensions in order for dependents to receive these when the pension holder dies, they need to be nominated as ‘reversionary’ pensioners and be receiving Centrelink benefits at the date of death of the superannuation pensioner.

He says that some super pensions, and no one knows exactly how many, unfortunately do not make provision for reversionary pensioners because of the negative impact this could have on Centrelink benefits, a problem which is particularly prevalent in SMSFs.

“The current rules determine the amount of superannuation pension that is exempted under the Income Test. The calculation is based on the account balance at the start of the pension and life expectancy. If a reversionary pensioner is nominated, then the longer of the life expectancies of the pensioner and reversionary pensioner is used.

“The greater the life expectancy, the lower the amount excluded under the income test.”

Mr Murden says that it has become commonplace in SMSFs to establish the pension without a reversionary pensioner. “On the death of the pensioner, provided he or she was survived by a spouse or partner, the survivor simply opted to commence a new pension as the death benefit.

“However, under the new rules, a new pension is not grandfathered. Instead it is automatically subject to the new deeming rules which will have an impact on the income test, irrespective of the amount of pension taken.”

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    COMMENTS

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    Sally
    16th Sep 2014
    5:30pm
    Hi, Seems as if the government is making all sorts of new rules regarding pensions. One rule that never seems to get attention is for us Aussies that live in Sweden. We have been in touch with Swedish/Australian authorities both here and Aust. I have worked in Australia over 20 years, born and bred, served in the army 12 years. I get the answer - I must be in Australia to claim a pension, THEN I MUST LIVE THERE 2 YEARS. What happens to my family during that time. Looks as if I made a mistake when I married a Swede. Apart from moving back to Aust, which would be economically catastrofic. Any ideas, I am open to suggestions. Margaret
    KSS
    16th Sep 2014
    7:00pm
    It is not unreasonable to expect someone to be in Australia and actually live here if they expect to claim the age pension.

    We all made choices in life. You chose to marry and live overseas. I expect there were advantages to that and you obviously did well and raised a family. You also obviously intend to remain there. So forgive me but I don't see what the issue is? Except that you want to claim a pension paid for by the tax payers of Australia.
    A. N. Onymous
    16th Sep 2014
    8:15pm
    KSS,

    "paid for by the tax payers of Australia" -- Sally/Margaret would have been one of those taxpayers for the 20 years she worked in Australia and for the 12 years she served in the army. If you paid taxes for that amount of time, said taxes covering amounts including money paid to then pensioners, wouldn't you expect to be treated similarly when you reached the pension age? She is not a foreigner who never lived here asking for a pension.
    A. N. Onymous
    16th Sep 2014
    8:16pm
    who never lived or worked here or paid taxes here
    Not Senile Yet!
    16th Sep 2014
    6:34pm
    They keep changing the rules. Super is not worth the paperwork nightmare and all the changes every year to grab more and more money by sly means. Deeming is just a way to avoid paying Centrelink, Pension payments. Most baby boomers will be hurt when their pensions are reduced by the amount their super earns. No Not the ones who half 500,ooo..they do not need a pension. This will hurt the ones with less than $100,ooo.....Government is copying the USA model...pay the minimum amount.....and who cares if they cannot survive on it! No wonder the Super is not a viable option anymore......too many penalties for having it. But hang .....it is compulsory isn't it? Perhaps one should insist that all penalties that apply to Super .....apply to all Super.....including our esteemed MP;s Super.
    Kezzo
    16th Sep 2014
    10:57pm
    I had a heart attack and had to leave my full time employment in my 50's ... I recovered quite well, and started looking for a job. I wrote over 700 applications and received 6 replies, 2 of them tole me I was too qualified and thanked me for application. 2 said I was not suitable and 1 said please contact for appointment ans 1 said I had an appointment on the date before the letter answer to my application was sent, I phoned them but I was told they were not interested as I did not turn up for the interview ..I went to interview ,,,was told to wait a few minutes, after 50 minutes, at 10 minutes past 12 noon, I asked receptionist how much longer I would have to wait, she said one moment please and spoke on the phone. She informed me that the Lady who was going to interview went out for lunch and would be back in an hour ,, I said I would not be.. I took several jobs where I was paid a stipend and worked as a salesman ... Was terrible trying to sell things people didnt really want, all because I could not live on 200 a week ... I was using my savings to live... Lucky moment I was offered a job in Sweden ,, I took it, 2 years was great to feel wanted and that my work was appreciated. When contract finished I went to travel europe and had an amazing time, many little jobs, sailing and housecare work.. was fantastic. I returned to Aussie .... As I have no home of my own my brother offered me a room under his house in Queensland...well as luck would have it mother nature decided to send a flood and the house was destroyed... Again on the dole $200 a week, nowhere to live, and saved by the bell a friend offered me some work for 12 months back in Europe ... I was so pleased after 12 months I would be 65 and could return home to the age pension.... Well yes I was granted the age pension ,,get this GRANTED ,,it is not a right anymore. So I stayed with my brother.. Wow I netted some 840 a fortnight... very difficult to live on that too ... I made inquiries about going overseas ..I was told my pension will be stopped from the day I depart but it will recommence when i return, but I cannot leave Aussie for 2 years to be entitled to the pension when out of the country ..... I could not believe that I am a prisoner, is this legislation or regulation .... I paid tax for over 35 years in Aus. before I immigrated to Aus from NZ. I feel as if I have been pushed out ,,, I am overseas.
    lizzier
    17th Sep 2014
    5:55am
    The rules around most Australian pensions and welfare have become so incredibly complex that the 'simple' person is left needing to seek professional advice on many occasions. I believe this is a reactionary response to the numerous rorts that have taken place - which ultimately result in some form of inequity.
    In Australia eligibility is based on residency status and assets. I understand countries such as Sweden have quite a simple pension scheme because they do not need to account for the larger diversity we have in Australia. The second component of a Swedish pension is based on years of mandatory, government managed 'superannuation'. This is not the case in Australia, where a private superannuation market exists. Hence 'work in Australia' is not considered in a pension eligibility test. Is the primary component (government money paid to all) of a Swedish pension payable for those living overseas - especially in a situation where many recipients have multiple citizenships? Are you a Swedish citizen, which would give you eligibility for their general pension paid to all citizens?
    Maybe it is time for a complete overhaul...with some clear decisions regarding what basis a pension will be paid. Perhaps, like Sweden a component including years of employment in the country could be included but this would certainly introduce a whole new level of complexity.
    Grateful
    17th Sep 2014
    10:22am
    The rules for pension payments should not be complex, they should be extremely simple. Only pay pensions to those who are in GENUINE NEED of them and avoid all of that "creative accounting" gymnastics that are used to qualify. So simple!!
    FrankC
    17th Sep 2014
    12:44pm
    Oh dear, here we go again, using bloody Americanisms.What does "grandfathered' mean ? I asked a guy called Tom Mower, who was the president of a company at the time, who had just used this phrase in a talk he gave, and even he couldn't really give an answer to it, and he is an American. So Debbie, Debbie, Debbie, PLEASE don't use these words; remember this is Australia; let us not make it a satellite American colony.!!
    vincent
    17th Sep 2014
    6:19pm
    Some countries take a more enlightend approach ie the Netherlands.Every year you were employed there 2% of the pension total, irrespective of where you live.This pension is not tied to any other income.In Aus we pay a very high personal taxrate wich disappears in the black hole (canberra).
    Over there the personal tax rate is very low but what is the killer the compulsory payments to social insurances. the saving grace is that is a percentage of your wages and not a fixed amount wich hurts the lower paid people the most. All in all I never regretted migrating to Australia.
    Sally
    18th Sep 2014
    9:10pm
    Hi Everyone. Thank you for your comments both positive and negative. It was interesting to see what other people had to say.
    To KSS-I have no problem to be in Australia to put in my claim, but to stay 2 years after, doesn't work when you have a family. No, we did not intend to stay in Sweden. Came back to Aust 98-99, had a block of land picked out, house etc. Couldn't get a loan, banks said my husbands pension wasn't an income??? He had a bigger pension than my wage as a full time midwife. I would like to have the amount of pension that is durely mine, I worked 25 yrs for it.
    To Lizzie, Yes, I have dual nationality. Yes, I receive a very small pension here. To get the "folk pension" you must have been here 40 yrs, Yes, when you are working you pay into a type of superanuation called "ATP". There is no assests tests here.
    Once again, thanks for your comments,


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