More stringent Centrelink incomes test on pensions

•    Account-based pensions will be subject to a more stringent Centrelink incomes test.  This applies to account-based pensions which commence on or after 1 July 2015

•    Account-based pensions which commenced before 1 July 2015 will continue to be subject to the current “deductible amount” test

Assessment

•    The deeming rules will generally provide a less generous assessment of account pensions for the Centrelink income test purposes

•    SMSF members who are in a position to commence a pension before 1 July 2015 should do so – to ensure that the generally more favourable test is maintained in respect of pension

Implications

•    While the deeming rules will only apply to pensions which commenced on or after 1 July 2015, there is the very distinct risk that any changes made to a “grandfathered pension” where the change occurs on or after 1 July 2015 will cause the changed pension to lose its grandfathered status and to be assessed under the less generous deeming rules

•    Changes which could be relevant are:

-    refreshing a pension by adding new pension capital
-    merging two or more grandfathered pensions
-    transferring a pension to a reversionary beneficiary
-    a payment split applying to the pension
-    rolling over a pension to another fund

•    The deeming rate applied under the deeming test generally bears no connection with the actual investment.  Where actual investment is zero or negative, Centrelink will still assess the pension as providing a 4% return for Centrelink purposes.