Assessment of defined benefit income

Sue has a defined benefit pension and is seeking clarification on how the stated deductible amount of 10 per cent is assessed in regards to the income test for the Age Pension.

Q. Sue
I have a query regarding income thresholds for defined benefit pension for Age Pension purposes. The recent change (1 January 2016) suggests that the deductible exemption is a maximum of 10 per cent of defined benefit pension income. It is not clear to me whether the current exemption of $164 per fortnight from any income is in addition to it. For example, if I have a defined benefit pension of $1200 per fortnight, then will my threshold be (a) $120 (10 per cent of 1200), (b) $120+$164, or (c)$164?

A. The 10 per cent exempt income is essentially in addition to the $164, however, 10 per cent is the maximum that can be exempt.

The assessable income of a defined benefit income stream is calculated by reducing the gross payment by the deductible amount. The deductible amount is equal to the tax-free component of the income stream under tax law as calculated by the superannuation fund. This is capped at 10 per cent of the gross payment for non-military defined benefit income streams.

Therefore, assuming your income stream is non-military, and it is subject to the maximum cap of 10 per cent, your deductible amount will be $120, leaving your assessable income as $1080. From this, $164 will be ‘excluded’ = $916. This will mean that your Age Pension is reduced by $458 – 50 cents for every dollar you exceed the threshold. 

If you have other assessable income, then the amount by which your Age Pension is reduced will increase.

It’s also worth noting that your eligibility for the Age Pension is assessed under the asset test and you are paid the lower amount that results from both assessments.

This information is general and you should consult with Centrelink regarding your own personal circumstances.

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Income and asset test

Written by Debbie McTaggart

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