Grandfathered Account Based Pension

A grandfathered account based pension is an account based pension where the assessment of the pension income is calculated using the deductible amount method.

The current assessment of a non-grandfathered account based pension for social security or aged care purposes is done using the deeming method.

However, certain account based pensions are grandfathered and assessed under the old Income Test assessment rules.

Some argue that the grandfathered assessment of account based pensions is more favourable, yet this is not always the case.

Each situation is different in determining whether the deductible amount method or the deeming method is more favourable.

This article provides the necessary information to easily calculate which method provides a better outcome.

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The information below shows how account based pensions are assessed by Centrelink under the two different methods.

You are unable to choose which method applies. It is simply based on whether a pension is grandfathered or not.

In saying this, it is usually possible to easily transition a grandfathered pension into a non-grandfathered pension, but not the other way around.

Account based pensions and allocated pensions are the same thing.

The deductible amount of grandfathered account based pensions has nothing to do with the taxation of the pension income.

The deductible amount purely relates to the assessable income for social security and aged care purposes.

Grandfathered Account Based Pension

What is a grandfathered account based pension?

A grandfathered account based pension is a pension that was commenced prior to 1 January 2015 and where the owner of the pension was also in receipt of social security payments on that date.

Further, for the pension to remain grandfathered, the pension owner must have been in continuous receipt of a social security pension or allowance since that date.

The pension income received by the owner of the grandfathered account based pension is assessed using the deductible amount method.

That is, the assessable amount of the actual income received is reduced by the deductible amount, using the deductible amount formula.

The deductible amount formula is: deductible amount = (initial purchase price – commutations since commencement) / relevant number at commencement.

All of the information required to calculate the deductible amount can be found on a Centrelink Schedule issued by the pension provider.

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Here is an example of the details contained within a Centrelink Schedule.

Centrelink requires a copy of the Centrelink Schedule to calculate the deducible amount of a grandfathered account based pension.

Grandfathered Account Based Pension Example

Below is an example of how the deductible amount of a grandfathered account based pension works.

Sue, aged 69, is single and started an account based pension on 1 July 2014 (age 65) with $500,000.

At that time, Sue was in receipt of Centrelink Age Pension payments and has been every day since.

Therefore, Sue’s account based pension is a grandfathered pension.

She made a one-off lump sum commutation in 2016 of $15,000 to buy a new car.

The current balance of the pension is $475,000 and she draws an income of $2,000 per month.

The components required to calculate Sue’s deductible amount is:

Initial Purchase Price = $500,000
Commutations since commencement = $15,000
Relevant Number = 21.62

The deductible amount is ($500,000 – $15,000) / 21.62 = $22,433.

Sue receives income from her grandfathered account based pension of $2,000 per month, or $24,000 per annum.

The deductible amount of $22,433 is deducted from the $24,000, meaning only $1,567 per annum is assessed for social security or aged care purposes under the Income Test.

The current balance of the pension (i.e. $475,000) is assessed under the Assets Test.

Had Sue ceased being eligible for social security payments at any stage sine 1 January 2015, or refreshed the pension, her account account based pension would become a non-grandfathered account based pension.

Non-Grandfathered Account Based Pension

A non-grandfathered account based pension is an account based pension started after 1 January 2015, or an account based pension commenced prior to 1 January 2015 where the owner has not been in continuous receipt of social security payments since that date.

For the Income Test, a non-grandfathered account based pension is deemed, as opposed to having the income assessed under the deductible amount method.

Similar to a grandfathered account based pension, the current value of a non-grandfathered account based pension is assessed under the Assets Test.

Based on the situation above, Sue’s account based pension would be deemed to earn an income of $14,760 per annum, due to the deeming of account based pensions.

The actual income that Sue receives from a non-grandfathered account based pension is irrelevant.

This $14,760 is much higher than the assesseable income of $1,567 per annum under the grandfathered account based pension.

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Deeming vs Deductible Amount Method

If Sue was receiving an income of, say, $40,000 per annum from her pension, the deeming method would be more favourable.

This is because the deeming calculation does not change and neither does the deductible amount calculation.

Therefore, the $40,000 income is reduced by $22,433, leaving $17,567 of assessable income, which is a higher assessable income than the deeming method.

Deductible Amount Calculation

The calculator below can be used to work out the deductible amount of a grandfathered-account based pension.

The relevant number can be found in this Table of Life Expectancy within the social security guide.
Make sure that you are using the table relevant to the year when you first began receiving payments.

Chris Strano

Hi, I hope you enjoyed reading this article. If you want my team and I to help with your retirement planning, click here. If you prefer a DIY approach, then check out the SuperGuy HUB. Thanks for stopping by - Chris.

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  1. Heather Micallef

    Hi Chris
    My husband has been self employed for many years and is 61 this year. If he takes his super lump sum of $52,000, can he still run his business and take only 10 hours pay each week at his current hourly rate?

    • Chris Strano

      Hi Heather,
      In order to access super over age 60 and prior to age 65, an individual must declare to the trustee of their super fund that an arrangement under which they were gainfully employed has come to an end after reaching age 60. ‘Gainfully employed’ is defined as … employed or self employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.

      I’m not entirely sure, but i don’t think a reduction in hours would constitute gainful employment coming to an end. There would need to be an end and recommencement.

      Related Articles:
      Establishing Whether Gainful Employment Has Ceased

  2. Oscar Bocskay

    Hi Chris,

    I am having all sorts of difficulties with Centrelink Pension payments. I have a SMSF with both a pension phase and accumulation phase. I’m not 100% convinced Centrelink are using correct values for my assets and annual income to determine my Pension.
    Can I please contact you to provide more details and get your expert advice
    Kindest Regards


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