iAdvice Financial Services | Means Test Rules for Pooled Lifetime Income Streams
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Means Test Rules for Pooled Lifetime Income Streams

Means Test Rules for Pooled Lifetime Income Streams

Frequently Asked Questions

The information provided on this web page is subject to the passage of legislation.

The information on this page have been provided to indicate the broad impacts of the new means test rules for pooled lifetime income streams.

The Department of Social Services disclaims all liability to any person in respect of anything, and of the consequences of anything, done or omitted to be done, by any such person in reliance, whether wholly or partially, upon any information presented on this web page.

This web page is made available on the understanding that the Department of Social Services is not providing professional financial advice. When making decisions around financial products, purchasers or providers should not rely on this web page and should obtain appropriate professional financial advice.

It is important to note that all product assessments depend on the individual circumstances of a person’s case, as determined by a Department of Human Services delegate. All information contained in this FAQ is general in nature.

These FAQs were last updated on: 16 August 2018

If you have further questions regarding the new means test rules for pooled lifetime income streams, you can send your questions to our inbox at: RetirementIncomeStreams@dss.gov.au

Questions

  1. Who will be affected by the new means test rules?
  2. How will payments from a pooled lifetime income stream be assessed under the social security income test?
  3. How will pooled lifetime income streams be assessed under the social security assets test?
  4. How will products with large surrender values and death benefits be assessed under the social security assets test?
  5. How will deferred pooled lifetime income streams be assessed under the social security assets test?
  6. How will a pooled lifetime income stream held inside an account based income stream be assessed under the social security means test?
  7. How will an account-based income stream with ‘guaranteed minimum income benefit for life’ be assessed under the social security means test?
  8. How will deferred pooled lifetime income stream products purchased before 1 July 2019 be assessed?
  9. Will the new means test rules apply to account-based income streams?
  10. How will the new means test rules determine the purchase price of collective defined contribution schemes?
  11. Has the Department done any modelling of the new means test rules?
  1. Who will be affected by the new means test rules?

Subject to the passage of legislation, the new means test rules will apply to both Social Security and Veterans’ Affairs payment recipients. The new rules will apply to all pooled lifetime income streams purchased on or after 1 July 2019.

Pooled lifetime income streams purchased before 1 July 2019 will continue to be assessed under the current rules for long-term asset-tested income streams.

For more information on how our existing rules assess long-term asset-tested income streams, go to the Department of Human Services website.

  1. How will payments from a pooled lifetime income stream be assessed under the social security income test?

Under the new means test rules, 60 per cent of all payments from pooled lifetime income streams will be assessed as income.

Example: A person receives an annual payment of $5,000 from a lifetime income stream. 60 per cent ($3,000) is assessed as income under the income test. As their payments increase due to indexation, 60 per cent of the payments will continue to be assessed under the income test for the duration of the lifetime income stream.

The income assessed from the pooled lifetime income stream will be added to a person’s other assessable income. The person’s total income will then be assessed under the income test for their relevant social security payment.

  1. How will pooled lifetime income streams be assessed under the social security assets test?

Under the new means test rules, 60 per cent of the purchase price of pooled lifetime income streams will be assessed as an asset under the assets test from the date of purchase until the life expectancy of a 65-year-old male (currently 19 years), or a minimum of five years. After this, 30 per cent of the purchase price will be assessed for the rest of the duration of the pooled lifetime income stream.

Example: A person purchases a lifetime income stream at age 65 for $200,000. At purchase, the life expectancy of a 65-year-old male is 19 years. Initially, 60 per cent of the purchase price ($120,000) is assessed as an asset under the assets test. 60 per cent continues to be assessed for 19 years, after which point 30 per cent ($60,000) of the purchase price is assessed as an asset under the assets test. 30 per cent is then assessed for the rest of the duration of the lifetime income stream.

Example: A person purchases a lifetime income stream at age 83 for $200,000. At purchase, the life expectancy of a 65-year-old male is 19 years. Initially, 60 per cent of the purchase price ($120,000) is assessed as an asset under the assets test. 60 per cent of purchase price is assessed as asset for five years, after which 30 per cent ($60,000) of the purchase price is assessed as an asset under the assets test.

The life expectancy of a 65-year-old male will be linked to the Australian Government Actuary’s life tables, and updated as new life tables are released.

The assets assessed from the pooled lifetime income stream will be added to a person’s other assessable assets. The person’s total assets will then be assessed under the assets test for their relevant social security payment.

  1. How will products with large surrender values and death benefits be assessed under the social security assets test?

Changes to the superannuation regulations introduced on 1 July 2017 placed restrictions on the surrender values and death benefits that could be offered with pooled lifetime income streams.

The new means test rules will apply to all pooled lifetime income streams, including those purchased outside of superannuation that offer surrender values and death benefits above those outlined in the new superannuation regulations.

In such cases, the assets value assessed under the assets test will be greater of:

  • the standard assets test treatment outlined above (refer to Question 3)
  • the value of any current or future surrender value
  • the value of any current or future death benefit.

Pooled lifetime income streams that comply with the restrictions outlined in the superannuation regulations will not be affected by these additional rules, and will be simply assessed under the standard assets test rules outlined above (refer to Question 3).

  1. How will deferred pooled lifetime income streams be assessed under the social security assets test?

Deferred pooled lifetime income streams (those that delay the start of payments for a set amount of time after purchase) will be assessed under the same rules as pooled lifetime income streams that make payments immediately.

Deferred pooled lifetime income streams will be assessed under the income test when they start to make payments (refer to Question 2).

There will be no income test assessment before payments commence.

Deferred pooled lifetime income streams will be assessed under the assets test from the date of purchase.

They will be assessed under the assets test rules outlined above (refer to Question 3 and 4) before and after payments commence.

Example: A person purchases a deferred pooled lifetime income stream at age 65 for $200,000. At the date of purchase the life expectancy of a 65 year old male is 19 years. The income stream does not start making payment until they are 80 years old.

Under the income test, 60 per cent of the payments from the income stream are assessed as income. No income is assessed before they are 80 and start receiving payments.

Under the assets test, 60 per cent of the purchase price ($120,000) is assessed as an asset from the date of purchase for 19 years, after which point 30 per cent of the purchase price ($60,000) is assessed as an asset. 30 per cent is assessed for the rest of the duration of the lifetime income stream.

  1. How will a pooled lifetime income stream held inside an account based income stream be assessed under the social security means test?

Some pooled lifetime income streams may be held as an investment inside an account based income stream.

In these cases, the value of the pooled lifetime income stream will be assessed separately to the rest of the account-based income stream.

The pooled lifetime income stream component will be assessed under the new income and assets test rules outlined above (refer to Questions 2–4). The remainder of the account balance of the account-based income stream will be assessed under the existing rules for account-based income streams.

Providers offering pooled lifetime income streams held as an investment inside an account based income stream will be required to separately report the purchase price of the pooled lifetime income stream, and the income received from the pooled lifetime income stream investment.

For more information on the existing rules for account-based income streams, go to the Department of Human Services website.

  1. How will an account-based income stream with ‘guaranteed minimum income benefit for life’ be assessed under the social security means test?

Some account-based income stream products are sold with a ‘guaranteed minimum income benefit for life’, which acts as a lifetime income stream that commences when the account balance of an account-based income stream drops below a certain amount. This lifetime income stream would then pay a guaranteed amount until the product ceases.

The Social Security Act 1991 is designed to assess individual products based on their characteristics. As such, hybrid products would be assessed based on the rules for each separate component.

In this case, the account-based income stream component should be assessed separately from the lifetime income stream, even though the components are linked.

The account-based income stream component will be means tested using the existing rules for account-based income streams.

The lifetime income stream component will be assessed depending on when the lifetime income stream component commences.

If the lifetime income stream component commences before 1 July 2019, it will be assessed under the existing rules for long-term asset-tested income stream products.

If the lifetime income stream component commences on or after 1 July 2019 it will be assessed under the new means test rules (refer to Question 2–4) for pooled lifetime income streams.

Note: The purchase price of the lifetime income stream component will be the sum of the specific fees or charges paid to finance the lifetime income stream component. Where such fees or charges are not readily identifiable, an alternative method of determining a fair purchase price, such as an actuary’s certificate, may be required.

For more information on the existing rules for account-based income streams and long-term asset-tested income streams, go to the Department of Human Services website.

  1. How will deferred pooled lifetime income stream products purchased before 1 July 2019 be assessed?

The new means test rules will only apply to pooled lifetime income streams, including deferred pooled lifetime income streams, purchased on or after 1 July 2019.

All deferred pooled lifetime income stream products purchased before 1 July 2019, including deferred income stream products in a deferral period at 1 July 2019, will be assessed under the existing rules for long-term asset-tested income streams.

For more information on how our existing rules assess long-term asset-tested income streams, go to the Department of Human Services website.

  1. Will the new means test rules apply to account-based income streams?

The new means test rules will not apply to account-based income streams, and the social security means test rules for account-based income streams will not change.

For more information on how our existing rules assess account-based income streams, go to the Department of Human Services website.

  1. How will the new means test rules determine the purchase price of collective defined contribution schemes?

The Government expects a wide range of pooled lifetime income streams to be developed under the new superannuation regulations, and assessed under the new means test rules. These include products such as collective defined contribution schemes (CDC).

CDC products do not have a clearly defined purchase price like other income streams, such as annuities. As such, the purchase price of a CDC will be valued in a similar way to how they would be valued for the purposes of the superannuation transfer balance cap, which is specified in regulation 307.205.02D of the Income Tax Assessment Regulations 1997.

Regulation 307.205.02D of the Income Tax Assessment Regulations 1997, determines the value of a pooled investment pension as:

(1)  For the purposes of paragraph 307-205(1)(a) of the Act, the value at a particular time of an individual’s superannuation interest that supports a pooled investment pension is the value of so much of the collective pool of assets in the fund at that time as is:

(a) attributed to the individual under the rules of the fund; and
(b) specified in an actuary’s certificate.

The purchase price of a CDC would be determined in a similar manner for social security means test purposes.

  1. Has the Department done any modelling of the new means test rules?

Modelling of the new means test rules has been released and is available on engage.dss.gov.au. This modelling was prepared in conjunction with the Australian Government Actuary. The document presents modelling on the final rules, with updated modelling assumptions. It also provides modelling of additional scenarios not included in the earlier modelling, such as people purchasing products at later ages.

The Department also released modelling as part of the position paper in January 2018 on the new means test rules. This modelling is based on an earlier iteration of the new means test rules and does not reflect the impact of the final rules announced by the Government.

https://www.dss.gov.au/seniors/budget-measures/means-test-rules-for-pooled-lifetime-income-streams

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