Income streams: social security asset test (including legacy pensions)

Information for advisers only.

Account balances in the accumulation phase of superannuation are only subject to the asset test once the individual reaches Age Pension age. However, this is not the case with superannuation pensions.

Upon commencement of an account based pension, the account balance is captured under the assets test. The balance is then reviewed quarterly by Centrelink.

Term Allocated Pensions (TAPs) purchased between 20 September 2004 and 20 September 2007 are 50 per cent asset test exempt providing they comply with the requirements contained in Section 9BA in the Social Security Act 1991.

Lifetime and life expectancy pensions and annuities purchased prior to 20 September 2004 are 100% asset test exempt providing they comply with the requirements contained in Sections 9A or 9B of the Social Security Act 1991.

Lifetime and life expectancy pensions and annuities purchased from 20 September 2004 but prior to 20 September 2007 are 50% asset test exempt providing they comply with the requirements contained in Sections 9A or 9B of the Social Security Act 1991.

For pre-1 July 2019 lifetime and life expectancy pensions and annuities subject to the asset test (including 50% asset test exempt income streams), the purchase price is depreciated every six months (in arrears) where there are at least two payments made annually. Where only one payment is made annually, the asset is depreciated annually in arrears. Examples of this treatment can be accessed in the Social Security Guide.

For defined benefit pensions paid from a public or private superannuation fund established before 20 September 1998, there is no assessment under the assets test provided certain conditions are met. Details of these conditions are outlined in the Social Security Guide.

For defined benefit pensions that do not satisfy the conditions for assets test exemption, the asset value used is determined annually using the below formula.

Annual payment x pension valuation factor

Details of the pension valuation factors which are based on life expectancy and the indexation rate of the income stream are outlined in the Social Security Guide.

All income streams purchased on or after 20 September 2007 are asset tested unless purchased with proceeds from the commutation of an asset test exempt income stream. Refer to the Social Security Guide for more information.

Lifetime income streams commenced after 1 July 2019 are assessed differently depending on whether it is possible to make commutations from the income stream that does not align to a capital access schedule as outlined in the Social Security Guide.

Where the ability to commute does align with the capital access schedule, 60% of the purchase price is assessed from the commencement of the income stream until the later of:

• When the individual reaches the age worked out by taking the life expectancy of a 65 year old male at the time of commencement of the income stream, rounded down to the nearest whole year, plus 65, and
• 5 years.

After the threshold day, the asset test assessment is 30% of the purchase price.

If the income stream has commutation values that do not align with the capital access schedule, for example the surrender value or death benefit is higher than the capital access schedule the assessment is the greater of:

• The rules noted above about the 60%/30% of the purchase price,
• The current/future surrender value where it exceeds the capital access schedule, and
• The current/future death benefit where it exceeds the capital access schedule.

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