Centrelink Deductible Amount Formula

Centrelink Deductible Amount Formula

When determining the entitlements that you are eligible for in relation to the Centrelink Age Pension and some other social security payments, you are assessed using either the ‘Income Test’ or the ‘Assets Test’.

Under the income test, some forms of income are favourably assessed for Income Test purposes.

In some cases, the income is not assessed at all.

Income from superannuation pensions commenced post 1 January 2015 may not be so lucky. More on this later.

Income with favourable assessment

Certain income streams such as Allocated Pensions, Account Based Pensions, Market Linked Pensions and Annuities are favourably assessed.

What makes the assessment favourable?

Income such as rental income from an investment property or work income is assessed at face value (i.e. the amount received is the amount assessed for Income Test purposes).

Other types of income is based on a deeming rate. For instance, if you have $50,000 invested in a bank account, it is not the interest received that is counted towards the Income Test, but rather the amount that this $50,000 is deemed to earn.

The higher level of income received may reduce the amount of social security entitlements that you are eligible for. Therefore, by reducing the amount that is assessed, the higher your potential benefits.

Assessment of Income Streams

Most types of income streams are favourable assessed as they include a Centrelink Deductible Amount. The Centrelink Deductible Amount Formula is detailed further below.

USE THE CENTRELINK DEDUCTIBLE AMOUNT CALCULATOR BELOW 

Centrelink Deductible Amount Formula

Allocated Pensions, Account Based Pensions, Lifetime Annuties and Market Linked Pension

Deductible Amount p.a. = (Original Pension Purchase Price less Any Commutations throughout the life of the pension) ÷ Relevant Number

Where:

Purchase Price = The lump sum amount that was initially used to commence the pension

Commutations = lump sum withdrawals made from the capital value of the pension (not pension payments)

Relevant Number = Life Expectancy factor based on Life Expectancy Tables

Term Annuities

Deductible Amount p.a. = (Original Pension Purchase Price – Any Commutations throughout the life of the pension) ÷ Term of the Annuity

You can find more detailed information using the Guide to Social Security Law.

The Deductible Amount formula also applies to Non Commutable Account Based Pensions.

 

The Deductible Amount is the amount of your income stream that IS NOT assessed for Centrelink purposes.

The formula to determine the Deductible Amount varies depending on the type of income stream.

PENSIONS COMMENCED POST 1 JANUARY 2015

Superannuation Pension Income Streams commenced post 1 January 2015 may no longer include a Deductible Amount. Instead, it is proposed that the pension balance will be ‘deemed’ to earn an income, similar to superannuation accumulation accounts and most other investment assets.

To ensure your income stream is assessed under current rules, it needs to be commenced prior to 1 January 2015 and the pension member must be in receipt of a social security payment or particular concession card.

If the income stream is commenced prior to 1 January 2015, yet later fully commuted and re-commenced, it is expected that it will fall under the proposed rules and no longer include a Deductible Amount.

IMPORTANT

Calculating the Deductible Amount of an income stream for Centrelink purposes using the Centrelink Deductible Amount Formula is a complex area – particularly with new income stream products entering the market all the time. A Centrelink Officer will provide you with an accurate calculation of your Deductible Amount based on your personal circumstances.

If you would like anything clarified or have any further questions, please do not hesitate to leave a comment in the section below and I will endeavour to respond within 24 hours.

Centrelink Deductible Amount Formula

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Chris Strano

Chris Strano is a specialist independent superannuation author for SuperGuy.com.au - one of Australia's leading superannuation information resources.

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9 thoughts on “Centrelink Deductible Amount Formula

  1. aw

    You Said. “To ensure your income stream is assessed under current rules, it needs to be commenced prior to 1 January 2015 and the pension member must be in receipt of a social security payment or particular concession card.”

    Two Q’s:
    1. I am retired(with 24k/per annum from an employer permanent invalidity super) and am 62 years of age SO, perhaps it is best I start an income stream from my private Super?? However, I am NOT be in receipt of any social security or concession card(except possibly being listed on my Wife’s temporary Heath care card)….does this matter?? Can I still start before 01 Jan 2015 and get the Centrelink deductible amt?

    2. ALL my contributions into my Super.pension account were AFTER tax(in fact savings that have already been taxed!) Does this make a difference? Or is the centrelink deductable only for any untaxed pension payments?? It seems unfair because, as said, I have already paid tax on these monies!

    cheers,
    aw

    1. Chris Strano Post author

      Hi aw

      Thank you for your questions. I have addressed these below:
      1. The proposed rules require you to have commenced the income stream prior to 1 Jan 2015 AND be a social security pension recipient, allowee, or low-income health care card holder immediately before 1 Jan 2015. You should check with a Centrelink officer on 13 23 00 if you are unsure about your situation.
      2. The tax components (pre-tax or post-tax contributions) that make up your superannuation balance are irrelevant for Centrelink assessment purposes. The Centrelink Deductible Amount formula is based on the purchase price of your income stream and life expectancy at commencement of the income stream – as detailed in the article above – and take into account gross payments received, less the deductible amount.

      Hope this has helped,
      Chris

  2. Paul M

    Nice clear writing thanks. I was running an allocated pension with a managed fund and also an accumulation superannuation. I had drawn some pension and also made various commutations. At age 69 I have set up a Self Managed Super Fund and rolled both managed funds into it then added more non concessional contributions bringing the total to $410,000 and from there I have (with all the right documentations) resolved to pay myself a pension from the whole account. The calculation for the minimum is around $14,700 . However using the formula , and a fresh start , my number is 15.49 and hence deductible amount for Centrelink purpose calculates at $26,469 , which will suit me just fine as I need to draw that much anyway. Is it basically that simple or have I missed some trap or trick due to the previous (now rolled over) pension etc.
    If it is relevant, the components are 107769 concessional and $392,231 , Reminder I am 69 and applying for aged pension.

    1. Chris Strano Post author

      Hi Paul
      Thanks for your queries.
      Yes, assuming you commenced a brand new Account Based Pension after the consolidation with a sum of $410,000 and at age 69, your relevant number is 15.49 and your deductible amount is $26,469 p.a.
      Therefore, any pension payments received from this source up to $26,469 will not be assessable for Centrelink purposes.
      The previous (now non-existent) allocated pensions/accumulation accounts are irrelevant.Likewise, the tax components are irrelevant also.
      Do you realise the components add to $500,000 not $410,000? If your balance is now $500,000, I’m not sure how you have come up with a minimum pension income of $14,700.
      Your minimum, based on your age, should be 5% of your account balance on 1 July http://www.superguy.com.au/minimum-pension-payments/
      Please confirm your deductible amount with Centrlelink by providing them with your pension purchase price, any commutations and date of commencement to ensure they assess your situation accurately.

  3. Mike M

    I am trying to compare the pre Jan 2015 rules and the post Jan 2015 as to whether to set up an allocated pension now or after Jan 2015. My question is with the pre 2015 rules. Does the deductible amount stay the same for the full life of the Allocated Pension, in my case it works out to a bit over $21,000, and I’ll probably be under the assets test for the first few years and income test for the rest. If so and I index the amount of allocated Pension I’m drawing, the reduced Centrelink pension stays pretty much the same apart from a portion of the annual increases until my allocated pension runs out. From what I’ve worked out so far the post 2015 would give me a better outcome

    1. Chris Strano Post author

      Hi Mike
      Yes, the deductible amount stays the same for the life of the pension (unless you make a commutation, then deductible amount needs to be recalculated). Therefore the pre 2015 assessment may result in more and more of your income being assessable over time due to indexation of the income stream you receive and a static deductible amount. It is definitely possible that the post 2015 deeming assessment of your allocated pension would be more favourable. The comparison of the pre and post assessment is a case by case basis.

  4. andrew urch

    I am currently drawing an ncap and intend to retire in February 2015 at age 63, commute my pension and leave my accumulation super account running until I turn 65 (my wife is receiving a dsp), because I already have the ncap in place will I still be entitled to the deductable ammount.

    1. Chris Strano Post author

      G’day Andrew
      To ensure your income stream is assessed under current (deductible amount) rules, it needs to be commenced prior to 1 January 2015 AND you must be in receipt of a social security payment or particular concession card. If you commute your pension in full (and commence a new one later), the new one will not be assessed under current rules. It will be deemed.

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