How you can use changes to the assets test to your advantage

Dorothy wants to know if she is in a position to benefit from changes to the assets test.

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Q. Dorothy
I read something about six months ago on the YourLifeChoices website where you mentioned new rules for the assets tests with Centrelink, where 40 per cent of money invested in a lifetime income product would not be counted for the asset test after 1 July 2019. I have not been able to find anything on this from Centrelink. Do these rules now apply? What exactly is a ‘pooled lifetime income product’? 

A. A pooled lifetime income stream is effectively one that ‘pools’ together people’s savings to provide lifetime payments and protect against longevity risk (an individual’s risk of outliving their savings). This is achieved as a portion of a person’s investment in the pool and will go to support payments to other members upon that person’s death.

Pooled lifetime income streams include:

  • Lifetime superannuation pensions;
  • Lifetime annuities (both superannuation and ordinary money); and
  • Deferred lifetime annuities.

Centrelink’s treatment of lifetime income products did change dramatically on 1 July.

If you take out one of these products after 1 July, only 60 per cent of the purchase price will be assessed for the assets test up to age 84 (or for a minimum of five years) and 30 per cent thereafter.

Consider this case study: A couple aged 70 has $800,000 in assessable assets and receives a tiny Age Pension. If they used $200,000 to buy a lifetime income product, their assessable assets would be reduced by $80,000 and their pension would increase by $6240 a year.

Annuity specialist Challenger advises that this $200,000 could provide an indexed lifetime guaranteed annuity for him of $6196 a year and for her of $5882 a year.

The combination of the increased Age Pension and the income from the two annuities would give them a guaranteed income of $18,318 in the first year. That could make a huge difference to their financial situation.

The new rules do not apply lifetime income streams that commenced prior to 1 July this year. These will be grandfathered and retain the current asset test rules.

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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 the 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 financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.

Written by Ben

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