Allocated Pensions and Centrelink

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18 Comments

  1. Trizka

    Chris, I have recently become an age pensioner, and have an Allocated Pension from which I receive an annual amount that is almost exactly offset by my Centrelink Deductable Amount. When set up five months ago, my plan was to make two commutations each year so that, together with the regular pension amount, and the Age Pension amount I get, I would have enough to live comfortably. I know that my Allocated Pension won’t be deemed after Jan 1, 2015 if I just continue to receive the allotted regular payment, but what I’m not sure about is whether, after that date, any commutations I make (as originally planned) will trigger the new rules being applied. Your input would be much appreciated — as with your existing material. Thanks.

    Reply
    • Chris Strano

      Hi Trizka
      This is a great question and one I have been following closely. At this stage I am of the understanding that a partial commutation will not affect the grandfathered status of a pension. However, commutations will reduce the deductible amount, as per the formula, which will cause more of your income to be assessable after each commutation. I believe that an existing account based pension will cease to be assessed under current rules if: there is a change in income stream providers, aggregating multiple ABPs, full commutation or ceasing to receive an income support payment (there are a few more, but not relevant to your scenario). Keep an eye on the implementation of this, as it may change between now and 1 Jan. At the end of the day, this should be discussed with a Centrelink Officer just prior to you making the first commutation after 1 Jan, as they have the software to run ‘what if’ scenarios – Ph 13 12 00. Let me know if you hear any update on this and I will do the same.
      Thanks again,
      Chris.

      Reply
  2. Liz

    Chris, I have had an allocated pension for 3 years, and also still have monies in a super – accumulation phase account. As I have retired (current age 68) I would now also like to turn this into pension phase. What would be the best way to do this? How could I add it to my existing pension account? My Centrelink part-pension is assessed under the assets test. Would changing my existing super pension generate a replacement of the current year’s pension payment schedule or would it generate a second payment schedule, resulting in the same asset be counted twice for the remainder of the current financial year?
    Thankyou for your time and advice,
    Liz

    Reply
    • Chris Strano

      Hi Liz
      1. You are unable to ‘add’ to an existing pension account. You can either commence a second pension with your accumulation balance, or commence a new pension using a combination of your existing pension and accumulation balance.

      2. Given that you have reached age 65, your existing pension and accumulation account are both fully assessed under the Centrelink ‘assets test’. There will be no change in assessment under the assets test by converting your accumulation account to pension phase.

      3. Currently, your accumulation account is ‘deemed’ to earn an income under Centrelink ‘income test’. If you were to commence a second pension, the income drawn from the pension, less the deductible amount, would be assessed for income test purposes (same as your existing pension). A separate Centrelink schedule would be generated for the second pension. Alternatively, if you were to commence a new pension with the combination of your accumulation and pension accounts, 1 new Centrelink Schedule would be generated and the existing schedule would no longer apply. In no case would it be counted twice, you just need to update Centrelink with your new situation and new Centrelink Schedules. Be careful that commuting your existing pension does not result in a lower overall deductible amount – otherwise you may be assessed under the income test.

      Deeming of your superannuation will no longer apply if you don’t have an accumulation balance.

      Remember that all of this will change as of 1 Jan 2015. You can be assessed under current rules if implemented and in receipt of social security prior to this date.

      Hope this helps. It is important that you seek advice suited to your personal circumstances to determine what is best for your overall situation (not just maximising Centrelink)

      Reply
  3. Jeanette

    I am a single female aged 58 on the full disability pension. I have $50,000 in shares outside super and $350,000 in super. At present, my super balance does not form part of my Centrelink asset calculation until I turn age pension age. If I convert my super to an account based pension prior to 31 Dec 14, will I then be bringing my super balance into the Centrelink asset calculation because it is greater than the $202,000 allowed for a single pensioner (thereby disadvantaging me)?

    Reply
    • Chris Strano

      Hi Jeanette!
      Thank you for your question.
      Yes, commencing an income stream will result in this amount being assessed under the Centrelink income and assets tests.
      Retaining it in accumulation will ensure it is not assessed until you reach age pension age.
      Regards, Chris

      Reply
  4. Lyn Kimpton

    Hi Chris,
    My husband is retired and living off an allocated pension of $20k p.a. He is currently 63 and will apply for an age pension in January 2016. He obviously may not be entitled to anything if I continue to work.
    I am 62 but not due to apply for the age pension until March 2018 (65.5yrs) and am still working with a super balance of approx $250k. Should I set up an allocated pension now and possibly salary sacrifice an extra $100p.w. Split my current super balance or just leave things alone as who knows what will happen in the future?
    Your thoughts would be greatly appreciated as I am totally confused.
    Many thanks.
    Lyn

    Reply
    • Chris Strano

      Hi Lyn
      What you should do depends on what you are trying to achieve. Given the topic of the article, I will assume you are attempting to maximise any Centrelink entitlements.
      There are many variables with your situation. I would suggest entering various scenarios into this Centrelink Age Pension calculator to see what may benefit your situation. https://www.centrelink.gov.au/RateEstimatorsWeb/publicUserCombinedStart.do (select the ‘estimate Centrelink rates only’ option) Alternatively, a Centrelink Officer may be able to run a few scenarios with you to see what works (13 23 00).
      If you require specific personal advice, you should consult a licensed financial planner.
      Good luck.

      Reply
  5. Sandy

    Currently I have an allocated pension, as I am a retired 61YO and I receive the minimum amount (4% of the banance)permitted each month. Therefore, I am not subject to the changes which will come into effect on 1st January 2015 – regarding pension/assets test for furture assessment for pension entitlements. Recently I noted in the media that if the amount paid by the pension was requested to be increased (e.g. if I decided I wanted 6% of the balance), then this would effectively change the assessment criteria. In other words, if I decided in June next year to increase my monthly payments, this would change my eligibility for the “grandfathering” rule. Can you offer any clarification, as time is running out for me to make a decision.

    Thanks, Sandy.

    Reply
    • Chris Strano

      Hey there Sandy!

      To ensure that you are not subject to the 1 Jan changes, you need to have commenced and income stream AND be in receipt of a Centrelink payment or allowance prior to 1 Jan. Check with Centrelink to make sure you will be eligible.

      I’m not sure that indexing a pension would affect the assessment of an account based pension. However, it may affect the amount being assessed. This is because the Centrelink Deductible Amount is static. For example, if your deductible amount was $12,000 p.a. and your first year pension payment was $11,000 p.a. (indexed annually), eventually part of your pension income would become assessable (due to the indexing), because the $12,000 deductible amount does not change. Use this calculator to determine your deductible amount http://www.superguy.com.au/centrelink-deductible-amount-formula/

      Reply
  6. Jim De Silva

    I am 70 in August 2015. I was working as a consultant (my own business) until February 2014 after which I applied for a Centerlink Pension. I have $8k in a Super fund, just sitting there. My wife who is 63, has a portfolio ($240K), and a “Retiremnet Plan- Account Based Pension”. I am not sure if it is a true ‘Allocated Pension” but she can wethdraw up to 10%, on demand which we did, as a lump sum, in July 2015. . Centerlink appers to be taking this as income wnen assessing my pension. As a result I am only receiving 36% of the full pension. I have trid to discuss this with them but have not got very far. I am not sure how to proceed. Your advice would be appreciated.
    Thank You
    Jim

    Reply
    • Chris Strano

      Hi Jim
      Your wife’s income stream sounds like a TTR Pension (non commutable pension), which allows her to draw an income of between 4% and 10% of her account balance each year while still working. Once she ceases work,or reaches age 65 her access should no longer be limited to 10%. The withdrawal that you made is income, despite the fact that it was made in a one-off payment (I assume you meant July 2014). However, there should have been a deductible amount associated to this income prior to 1 Jan 2015 – reducing the assessable amount. As of 1 Jan 2015, I believe that the income stream would be ‘deemed’ (assuming she is not receiving Social Security payments) and therefore the actual income received is irrelevant – see here http://www.humanservices.gov.au/corporate/publications-and-resources/budget/1314/measures/older-australians/29-10728. Remember, if a person is below Age Pension Age, any money sitting in Accumulation Phase of super (i.e. not an income stream) is not assessable for Centrelink purposes. Most income streams can be transferred back to accumulation phase, but would no longer provide an income and would be inaccessible until a condition of release is met.

      Reply
      • Tony O'Shea

        G’day Chris

        Thanks for providing this info … very informative

        If my only assets are an allocated pension balance of $320000 and I receive an allocated pension of $30000 per year does centrelink assess the $30000 under the income test or use deeming to determine aged pension eligibility?

        Thanks

        Tony

        Reply
        • Chris Strano

          Hi Tony, no problem. I’m glad you find it useful.
          The income assessment of your allocated pension will be based on whether it is a grandfathered pension or not. If it is not a grandfathered pension, it will be deemed for Centrelink Income Test purposes in the same way a bank account is deemed – the actual income you receive is irrelevant in this instance. If it is a grandfathered pension, it will not be deemed – instead, the pension income you receive will be reduced by the Centrelink Deductible Amount to determine the assessable income under the Centrelink income test.
          The account based pension balance will be assessed the same way under the Assets Test whether it is a grandfathered pension or not.
          Hope this helps.
          Regards,
          Chris
          Related Posts
          What is a Grandfathered Pension?
          Centrelink Deductible Amount Formula
          Superannuation Centrelink Assets Test

          Reply
  7. Jan S

    Hi Chris,
    I reach retirement age, 65, in mid October 2015. I currently have an income stream from an Allocated Pension of $1,250 per fortnight or $32,500 p.a.. The balance of this account is $398,000 and commenced on 24th June 2013. I do not receive any other Centrelink payments.
    My husband, who will reach 65 in May 2017 currently draws $910 per fortnight or $23,660 p.a. from two Defined Benefit superannuation funds. Apparently we will be assessed as a couple.
    It has been suggested that to maximise the aged pension and other benefits, I should reduce my annual superannuation income to as close to the Centrelink Deductible amount as possible and make up any shortfall with periodic commutations. This is assuming these commutations will not be assessed as income. This will, over a period of time, reduce my deductible figure.
    Do you see any pitfalls in this proposed course of action?
    By the way, you have a very informative website.
    Thanks, Jan

    Reply
    • Chris Strano

      Hi Jan
      I apologise for the late reply and thank you for your kind comments.
      Like you have stated, the only real pitfall is the fact that the deductible amount is recalculated and will reduce each time a commutation is made. I guess it somewhat also adds complexity to your overall retirement plan, as rather than simply getting an income stream, you are trying to manage income and periodic lump sum withdrawals, which will require withdrawal forms each time – unless you have a SMSF. But even then, records of commutations will need to be kept which further increases accounting administration.
      While the situation is different in each circumstance based on other sources of income, I would expect the overall net outcome to be similar (i.e. higher income payments vs lower income payments and partial commutations with reducing deductible amt.).
      If an adviser has suggested it, maybe they have run the numbers. However I wouldn’t expect the long term benefit to be significant, but maybe I am wrong!

      Reply
  8. Milton Harris

    Chris, I was in receipt of the aged pension from 5 Dec 2015 and then lost it with the asset means test change on 1/1/2017. I got issued a Seniors Health Card 1/1/2017 to replace it!
    From 5 Dec 2015 I had and still have an Account Based Streaming Pension, which was Grandfathered. I have recently got back a partial age pension 20/11/2018 within the lower asset means test. It looks to me like I am now assessed as deemed on my Account based pension. Is this the correct interpretation given I was issued with A Seniors Health Card on 1/1/2017. Does this cover my transition to negate the age pension cancellation?

    Reply

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