Asset Test Exempt Pensions - loss of status

A pension having Asset Test Exempt (ATE) status is a wonderful thing – whether the exemption is 100% (pension commenced before 20 September 2004) or 50% (pensions commenced 20 September 2004 and before 20 September 2007). 

The exemption is from the application of the Centrelink Assets Test.  If the pension has a 100% ATE status, it has a zero value for asset test purposes.  If the pension has a 50% ATE status then only half of the asset value is counted for asset test purposes.  Unfortunately ATE status was too good to last and any pension commenced on or after 20 September 2007 is not entitled to ATE status.

However, in special and limited circumstances, a pension which is commenced on or after 20 September 2007 can “inherit” ATE status of an earlier pension which commenced before 20 September 2007.  The retention of ATE status into the new pension will only apply where the circumstances satisfy the relevant conditions which are set out as Principles issued by the relevant department – referred to as the “Retention Principles”.

To retain ATE status the conditions set out in the Principles must be strictly satisfied.  If not, then the new pension will not inherit any ATE status.  This was the situation of a Mr Allan Meyers who unsuccessfully argued that a pension which commenced after 20 September 2007 should have an inherited 100% ATE status.

Mr Meyers commenced a defined benefit pension on 1 July 2004 (2004 pension) from his self managed superannuation fund (at the time the SIS Regulations permitted such pensions to be paid by self managed superannuation funds).  As this pension was a complying lifetime pension, it was eligible for 100% ATE status.  On 1 July 2008 Mr Meyers commuted the 2004 pension and transferred the entire commutation payment into commencing a market linked pension on 1 July 2008 (2008 pension).

In July 2009 (presumably driven in part by the Global Financial Crisis) Mr Meyers decided to transfer his entire pension to a public offer super fund.  He then commenced on 23 July 2009 (2009 pension) a market linked pension from that public offer fund.

Mr Meyers argued that his 2009 pension had inherited the 100% ATE status from the 2004 pension.  Unfortunately, Centrelink took a different view and, after appeal to the Administrative Appeals Tribunal, Centrelink was right.  The case is reported as Meyers and Secretary, Department of Social Services [2019] AATA 788.

The critical issue was while the 2004 pension was 100% ATE, the 2008 pension did not inherit the ATE status of the 2004 pension and so there was no ATE status to inherit by the 2009 pension (which, but for the break in the inheritance, would have been entitled 100% ATE status).

The Retention Principles applicable at the relevant time (the 2005 Principles) did not address the situation where a complying lifetime pension was converted into market linked pension.  Consequently the 2008 pension did not inherit the 100% ATE status and therefore could not pass on that status to the 2009 pension.

Had the conversion of the complying lifetime pension occurred before 20 September 2007 then a different outcome would have occurred.  In this situation, the market linked pension would have been entitled to 50% ATE status (as it commenced before 20 September 2007) and therefore could have passed on its status to the 2009 pension as the Retention Principles address the situation of the situation of the ATE status of a market linked pension transferring to another market linked pension.  Under the 2005 Retention Principles ATE status cannot be transferred from a complying lifetime pension to a market linked pension.

The lessons to be learned are (1) retention of ATE status is complicated and (2) if a pension has ATE status, expert advice should be obtained before any action is taken in respect of a pension which involves a commutation of the pension or a variation of a significant feature of the pension as the ATE status of the pension could be lost.