4.9.1.20 General Provisions for Assessing Income Streams

Summary

This topic contains general provisions for assessing income streams (1.1.I.70). This topic covers:

  • the 3 assessment categories of income streams,
  • ATE income stream characteristics,
  • asset-tested income stream characteristics,
  • defined benefit income streams,
  • income and assets treatment of the 3 assessment categories, and
  • transfer of an income stream to a reversionary beneficiary.

The 3 assessment categories of income streams

The 3 assessment categories of income streams are:

  • ATE income stream,
  • asset-tested income stream (long term), and
  • asset-tested income stream (short term).

Note:

  • account-based income streams are assessed as asset-tested income streams (long term), and
  • SMSFs or SAFs can offer all of the above income streams. Additional documentation (4.9.4.30) is required where they are providing lifetime or life expectancy ATE income streams, and
  • income streams received from an overseas source are not assessed as income streams for social security purposes because they do not meet the requirements of SSAct section 9(1).

Act reference: SSAct section 9(1)-'asset-test exempt income stream', section 9(1)-'asset-tested income stream (long term)', section 9(1)-'asset-tested income stream (short term)', section 9(1)-'income stream'

Policy reference: SS Guide 4.9.1.10 Background to Income Streams

ATE income stream characteristics

An ATE income stream:

  • is payable for:
    • the income support recipient's lifetime for lifetime products, OR
    • a term based on the income support recipient's life expectancy, or their reversionary partner's life expectancy (if relevant), AND
  • has a fixed annual payment (1.1.A.155), OR may be indexed at no greater than 5% or CPI+1%, (but indexation CANNOT be a negative value for lifetime or life expectancy products), OR has a payment determined at the start of each financial year based on set payment factors for market-linked products, AND
  • commences on the day it is purchased or acquired, AND
  • converts the purchase price wholly into income, AND
  • has nil RCV , AND
  • is non-commutable except in limited circumstances, AND
  • has limited reversionary benefits, AND
  • cannot be used as security for borrowing, AND
  • for lifetime and life expectancy products provided by a class of providers (SMSFs or SAFs), a current actuarial certificate is in force (4.9.4.40).

Note:

  • For pre-20 September 2004 ATE income streams refer to 4.9.2.10.
  • For post-20 September 2004 and before 20 September 2007 ATE income streams refer to 4.9.2.15.

Act reference: SSAct section 9(1)-'life expectancy', section 9(1)-'purchase price', section 9(1)-'residual capital value', section 9A Meaning of asset-test exempt income stream-lifetime income streams, section 9B Meaning of asset-test exempt income stream-life expectancy income streams

Policy reference: SS Guide 4.9.2.10 Characteristics of pre-20/09/2004 Asset-Test Exempt Income Streams, 4.9.2.15 Characteristics of Asset-Test Exempt Income Streams Purchased from 20/09/2004 & before 20/09/2007, 4.9.4.40 Actuarial Valuation Certificate for Lifetime or Life Expectancy ATE Income Streams Paid from SMSFs or SAFs

Asset-tested income stream characteristics

Asset-tested income streams which DO NOT meet all the characteristics of an ATE income stream are either:

  • long term, when the term of the contract:
    • is MORE than 5 years, or
    • is less than 5 years AND is equal to or greater than the purchaser's life expectancy, OR
  • short term, when the term of the contract is 5 years or LESS and is not defined as long term as above.

Policy reference: SS Guide 4.9.3.10 General Provisions for Asset-Tested Income Streams

Defined benefit income streams

A defined benefit income stream is a pension paid from a public sector or other corporate defined benefit superannuation fund or superannuation scheme (e.g. the Public Sector Superannuation Scheme). It does not include income streams purchased from retail providers (e.g. AMP, AXA), or income streams provided from self-managed superannuation funds and small APRA funds.

To be classified as a defined benefit income stream, an income stream must meet the definition of a 'pension' specified in the Superannuation Industry (Supervision) (SIS) Regulations 1994. The income stream must be paid for the lifetime of the recipient and must be attributable to a 'defined benefit interest' as defined in the SIS Regulations. For social security purposes, defined benefit interests are not determined in relation to a specific capital amount but relate to other factors such as:

  • an individual's salary at retirement,
  • the number of years of service in the organisation, or
  • specified factors for converting a capital sum to pension at rates that are favourable compared with those that would be available from a financial institution.

A defined benefit income stream is exempt from the assets test if it is covered by the Secretary's discretion extending the asset test exemption (4.9.2.20).

The income test assessment of defined benefit income streams is the same irrespective of whether it has an asset-test exemption or is asset-tested (4.9.3.30).

Act reference: SSAct section 9(1)-'defined benefit income stream', section 9(1)-'governing rules', section 9(1F) An income stream is a defined benefit income stream if…

Policy reference: SS Guide 4.9.2.10 Characteristics of pre-20/9/2004 Asset-Test Exempt Income Streams, 4.9.2.15 Characteristics of Asset-Test Exempt Income Streams Purchased from 20/09/2004 & before 20/09/2007, 4.9.2.20 Extension of Asset-Test Exemption to pre-20/9/98 Defined Benefit Income Streams, 4.9.2.30 Income Test Assessment of Asset-Test Exempt Income Streams, 4.9.3 Asset-Tested Income Streams, 4.9.3.30 Income Test Assessment of Asset-Tested Income Streams

Income & assets treatment of the 3 assessment categories

The following table shows the income and assets assessment for each category of income stream. The following abbreviations are used in the table:

  • AP = annual payment
  • DA = deductible amount for social security purposes, applies to defined benefit income streams only
  • PP = purchase price (1.1.P.500)
  • RN = relevant number (1.1.R.135)

Note:

  • Annual payment is gross amount of payments to be received by the income support recipient during the year.
  • The term 'deductible amount', for social security purposes, only applies to defined benefit income streams.
  • The term 'deduction amount', for social security purposes, applies to all non-defined benefit income streams. It is commonly used to describe the value derived by dividing the purchase price by the relevant number. It is different from the deductible amount which is defined in the Income Tax Assessment Act.
  • Purchase price is the sum of payments made to purchase the income stream LESS any commutations.
  • In situations where the assets backing the income stream have been frozen and no payments are made from the income stream for the whole financial year, these are still classified as income streams for social security purposes and the relevant income and assets assessment will continue to apply.
Type Income test treatment Assets test treatment
Asset-test exempt

Defined benefit income stream (4.9.2.30):

AP − DA

100% ATE (4.9.2.20).
 

Non-defined benefit income stream (4.9.2.30):

AP − PP ÷ RN

  • Purchased prior to 20 September 2004 are 100% ATE (4.9.2.10).
  • Purchased on or after 20 September 2004 and before 20 September 2007 are 50% ATE (4.9.2.15).
  • Purchased on or after 20 September 2007 are asset-tested with depleted purchase price (4.9.3.20) unless they are subject to special provisions (4.9.2.17).
Asset-tested (long term) − 100% asset tested

Defined benefit income stream (4.9.3.30):

AP − DA

  • Annual payment × pension valuation factor (4.9.3.20).
 

Non-defined benefit income stream (4.9.3.30):

AP − [(PP − RCV) divided by RN]

  • For account-based products, the current account balance (4.9.3.20).
  • For non-account-based products, the depleted purchase price (4.9.3.20).
Asset-tested (short term) − 100% asset tested Asset value deemed (4.9.3.30) Depleted purchase price (4.9.3.20).

Act reference: SSAct section 9(1)-'deductible amount'

Policy reference: SS Guide 4.9.2 Asset-Test Exempt (ATE) Income Streams, 4.9.3 Asset-Tested Income Streams, 4.9.3.20 Assets Test Assessment of Asset-Tested Income Streams, 4.9.3.30 Income Test Assessment of Asset-Tested Income Streams

Transfer of an income stream to a reversionary beneficiary

Income stream products may allow benefits to transfer to specified beneficiaries, called reversionary beneficiaries. Each product provider or fund has its own rules as to:

  • who can be a reversionary beneficiary,
  • whether the benefit can be paid as a lump sum or an income stream to that beneficiary,
  • when payments can commence to the reversionary beneficiary, and
  • the process for verifying that the primary beneficiary has died.

Generally, the 'transferred' or 'reverted' income stream will be assessed in the hands of the new 'owner' based on their characteristics and the characteristics of the income stream.

Where an income stream continues to be paid to a reversionary beneficiary after the death of the primary beneficiary, it will continue to have the same commencement day, purchase price and relevant number as the original income stream.

The reversionary beneficiary will begin to receive payments from the income stream from the date that they become entitled to it, and it is from this date that they will be assessed for social security purposes as receiving payments. In effect, this will be from when the product provider/trustee determines that the reversionary beneficiary is entitled to the income stream under the trust deed, governing rules or contract. For social security means test purposes, this will take effect in accordance with the date of effect provisions of the SS(Admin)Act.

Note: Generally, the reversionary beneficiary will receive lump sum payment of the arrears that have accrued between the death of the primary beneficiary and when the reversionary beneficiary starts to receive payments. For social security purposes, these lump sum payments are assessed as income.

For spouses, bereavement provisions apply.

Act reference: SSAct section 1207A-'spouse'

Policy reference: SS Guide 3.1.5.30 Bereavement Payment Provisions for Couples, 4.9.1.30 Specific Provisions for Assessing Income Streams

Last reviewed: 11 May 2015