Many people are unaware that the ways annuities are assessed changed last year, and it is particularly important information if you are considering a lifetime income stream.
The new rules, which came into effect from 1 July 2019, mean that any lifetime income stream purchased on or after that day is subject to the new assessment rules.
Annuities that were purchased before that date are still assessed using the old rules.
Under the means test rules, 60 per cent of all payments from lifetime income stream will be assessed as income.
For example, if a person receives an annual payment of $5000 from a lifetime income stream, 60 per cent ($3000) is assessed as income under the income test. As the payments increase due to indexation, 60 per cent of the payments will continue to be assessed under the income test for the Age Pension.
The income assessed from the lifetime income stream will be added to a person’s other assessable income. The person’s total income will then be assessed under the income test for the Age Pension.
The changes that came in from 1 July 2019 also had implications for the assets test.
Under the changed rules, 60 per cent of the purchase amount of a lifetime income stream is assessed as an asset from a person’s assessment day for the income stream until they reach the life expectancy for a 65-year-old male (currently 84 years old), or a minimum of five years.
After that date, 30 per cent of the purchase amount will be assessed for the rest of the duration of the lifetime income stream.
For products purchased with superannuation monies, the assessment day is the later date of:
- the day the person purchased or acquired the income stream, or
- the day the person satisfied a relevant condition of release.
For products purchased with non-superannuation monies, the assessment day is the day the product starts making payments, or the later of:
- the day the income stream was purchased or acquired, or
- the day the person reaches Age Pension age.
For example, if a person purchased a lifetime income stream at age 65 for $200,000, they would be expected to live for a further 19 years. Initially, 60 per cent of the purchase amount ($120,000) is assessed as an asset under the assets test.
That 60 per cent continues to be assessed as an asset for 19 years, but after that point only 30 per cent ($60,000) will be assessed for the duration of the lifetime income stream.
If instead a person was to purchase the same lifetime income stream product for the same value at age 83, 60 per cent of the purchase amount ($120,000) would be assessed as an asset for the first five years, then after five years only 30 per cent of the purchase amount ($60,000) would be assessed after that.
Have you considered purchasing an annuity for your retirement?
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Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a Centrelink Financial Information Services officer, financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.