FROM 1 January next year, the treatment of account based pensions (ABP) for age pension eligibility will change.
The new rules will apply to people starting an ABP after that date, and in some cases to ABP's started before then.
Under the existing rules, ABP's are exempt from the deeming rules, and the income taken from an ABP receives a discount for the purposes of the Centrelink income test. The discount or deductible amount is calculated using a formula that takes into account the purchase price of the income stream divided by the life expectancy of the pension owner at purchase.
From 1 January 2015, the ABP is losing its deductible amount, and the entire balance in the superannuation fund that is paying the ABP will be subject to the deeming rates.
The new rules will apply to those people that become eligible and apply for the Age Pension post 1 January 2015. Those currently in receipt of the Age Pension, and who have ABP's in place, will continue under the existing rules provided they don't at some point in the future become ineligible for pension assistance.
But be careful - the grandfathering rules will not apply if people change products.
There are planning opportunities for income tested pensioners who will be entitled to the Age Pension by 1 January 15. It might be a strategy that maximises their current deductible amount on existing ABP's or it could be to make contributions to superannuation to commence an ABP prior to 1 January 15.
It is essential that expert advice be taken - superannuation in accumulation mode is exempt from Centrelink assessment until the member reaches pensionable age. However, once an account based pension is started, it becomes assessable immediately.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: firstname.lastname@example.org
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