Commutations & Centrelink

What is a commutation payment?

Commutations are a withdrawals made from the capital supporting an account based pension.

Commutations may affect Centrelink entitlements.

The extent to which commutations affect Centrelink entitlements depends on a few factors, which will be discussed below.
 

What is a Pension Commutation?

 
There are two types of commutations that can be made.

Specifically, a pension commutation can be made as a rollback to a superannuation accumulation account, or it can be a commutation into your personal bank account.

Pension commutations can be full or partial.

For example, you may decide to commute part of your pension balance, or you may decide to commute your pension in full.
 

Commutations & Centrelink

 
Pension commutations may affect Centrelink assessment, depending on your situation.

The first thing you need to determine is whether or not your account based pension is a pre-1 January 2015 grandfathered pension.
 

What is an Account Based Income Stream

An account based income stream is a pension purchased using superannuation accumulation savings.

It is a flexible income stream allowing you draw any level of income you require, subject to a minimum pension payment based on your age.

Lump sum withdrawals, known as commutations, can also be made from an account based pension.

There is no guarantee that an account based pension will provide you with an income for the remainder of your life.

The longevity of an account based pension is determined by your level of drawdowns and the earnings from investments within the account.

Once the account balance reaches zero, no further pension payments will be received.

You can choose how your pension balance is invested through options available from your pension provider.
 

What is a Grandfathered Pension?

A grandfathered pension is an account based pension that started prior to 1 January 2015 and the recipent/owner of the pension has received continuous social security benefits since that date.

If your pension is a grandfathered pension, a partial commutation will change the Centrelink assessable income from the pension, based on the deductible amount formula.

If the partial commutation amount is rolled back to an accumulation account and you are over Age Pension age, the commutation amount will be assessed and deemed as an assessable superannuation asset.

If you are under Age Pension age, this roll back will not be assessed for Centrelink purposes.

If the partial commutation amount is paid into your personal bank account and you are over Age Pension age, the commutation will be assessed and deemed as an asssessable investment asset.

The pension will continue to be a grandfathered pension if a partial commutation occurs.

If you were to make a full commutation of your grandfathered pension, the commutaiton amount will be assessed as per the preceeding paragraphs.

A full commutation will not require a reclaulcation of the deductible amount, as the pension will no longer exist.
 

What is a Non-Grandfathered Pension?

A non-grandfathered pension is an account based pension that is not a grandfathered pension.

Non-grandfathered pension income is not assessed using the deductible amount method.

A non-grandfathered pension balance is simply deemed for income test purposes.

Therefore, a commutation will not require a recalculation of the deductible amount.

Have You Read My Other Posts Yet?

• Should I Leave My Super in Accumulation Phase?
• What is a Pension Refresh Strategy?
• Lump Sum Super Withdrawals & Centrelink

A full or partial commutation of an account based pension will be assessed identically to a grandfathered pension, as discussed above, excluding a recalculation of a deductible amount.
 

Does a Superannuation Payment Affect Centrelink Payments?

 
There are three types of superannuation payments that can be received.

1. Pension Payments
2. Pension Commutations
3. Withdrawal from Accumulation Account

1. Pension Payments
Pension payments from a grandfathered pension are assessed under the Centrelink income test using the Centrelink deductible amount formula.

Pension payments from a non-grandfathered pension are not assessed at all. Instead, the pension balance is deemed under the Centrelink income test.

For Centrelink asset test purposes, the account based pension balance is generally fully assessable.

2. Pension Commutations
A pension commutation made from a grandfathered pension will require a recalculation of the Centrelink deductible amount to determine the assessable income under the Centrelink income test. The commutation itself is not assessed.

A pension commutation made from a non-grandfathered pension is not assessed for Centrelink income test purposes.

For Centrelink asset test purposes, a pension commutation will reduce the assessable value of the pension balance, but may be assessed as a personal investment if, for example, the commutation was paid into a personal bank account. This commutation amount would also then be deemed for income test purposes.

If a commutation resulted in a rollback to accumulation phase. The assessable value of the pension would reduce, but the assessable value of the accumulation account would increase accordingly and be deemed, unless you are under Age Pension age.

3. Withdrawal from Accumulation Account
A one-off lump sum withdrawal from a super accumulation account will not be assessed as income under the Centrelink income test.

The withdrawal amount will be deemed under the Centrelink income test once it is paid into your bank account and will count towards the asset test.
 

What is A Centrelink Schedule?

 
A Centrelink Schedule is a document created by your superannuation pension provider.

This will have all of the information Centrelink requires to assess your income stream.

It will also have all the information you require to complete the Centrelink Details of Income Stream Product form.

Contact your superannuation pension provider to request a Centrelink Schedule.