4.6.5.100 Assessing Private Annuities & Overseas Income Products

Summary

This topic discusses:

  • assessing private annuities and overseas income products,
  • overseas income products - determining an asset value,
  • private annuity - when to get an actuarial valuation,
  • how to get a valuation,
  • when to reassess the value of an annuity,
  • the effect of an income support recipient forgoing an annuity payment, and
  • the effect of an income support recipient surrendering an annuity.

Assessing private annuities & overseas income products

Private annuities (1.1.P.425) and overseas income products are NOT assessed under the income streams rules (1.1.I.70). This is because they do not meet the requirement in the rules for prudential regulation. They ARE assessed under the general income and assets rules. All private annuities and some overseas income products have an asset value.

Overseas income products

Before September 1998 products purchased overseas were assessed in the same way as annuities purchased in Australia. Since 20 September 1998 the asset value is the purchase price of the annuity. The asset value should be re-assessed on each anniversary of the first day of the period to which the initial payment relates. The asset value is reduced in arrears by the amount of the annual payments.

Where a payment was purchased a number of years ago, taking into account the annual payments already made, the asset value will be low or nil.

Products not purchased on the market eg employer schemes (called non-resident non-complying superannuation funds for tax purposes) have a NIL asset value.

Exception: If the income support recipient is able to commute and take a lump sum the asset value is the amount the recipient could obtain if they commuted.

Where employer or government provided products have an asset value greater than nil, the asset value should be reassessed downwards annually.

Private annuity - actuarial value required

An actuarial value of an income support recipient's private annuity is required to establish its value for asset test purposes. This is because private annuities are usually family arrangements and are not traded in the market. The valuation is also required to determine whether or not the annuity is adequate consideration for the purchase price or whether the deprivation rules apply. An initial valuation should be obtained when:

  • an income support payment is claimed, OR
  • the private annuity is purchased.

Further valuations are generally required WHEN:

  • the number of annuitants (those receiving payments) changes,
  • the terms and conditions of the annuity change,
  • the amount paid by the annuity changes, and
  • the annuity is wholly or partly commuted.

Obtaining an actuarial value

The Australian Actuary can supply an actuarial value. The Actuary MUST be supplied with ALL the relevant details of the annuity including:

  • the payment rate,
  • the indexation rate (if any),
  • the date of birth of each annuitant,
  • the ability to commute the annuity (if any), and
  • a copy of the contract.

The following table shows additional information requirements:

If one of the parties is a… Also provide…
trust (1.1.T.180), a copy of the trust deed.
company (1.1.C.220),
  • the Articles of Association, AND
  • the company memorandum, AND
  • the most recent company accounts.
partnership (1.1.P.95), a copy of the partnership agreement and accounts.

Reassessing the value of the annuity

The asset value of a private annuity should be re-assessed on each anniversary of the first day of the period to which the initial payment relates. The asset value is reduced in arrears by the amount of the annual payments.

Payments forgone

IF an income support recipient forgoes a payment the value of the annuity is still reduced. Income deprivation provisions MAY also apply.

Policy reference: SS Guide 4.1 Deprivation of Income & Assets, 4.3.9.70 Income from Private Annuities & Overseas Income Streams

Annuity surrendered

Asset deprivation provisions apply IF an income support recipient:

  • surrenders their interest in a private annuity, OR
  • otherwise disposes of their rights under the contract AND does not receive adequate consideration (1.1.A.55).

Explanation: Generally when an income support recipient disposes of an income producing asset without adequate consideration, the asset value is maintained and deemed. It would be 'double-dipping' to also assess the forgone income as income deprivation. Therefore asset deprivation provisions only are applied.

Act reference: SSAct section 1064-G1 Effect of assets on maximum payment rate, section 1064-E1 Effect of income on maximum payment rate, section 1118 Certain assets to be disregarded in calculating the value of a person's assets, section 1119 Value of asset-tested income streams that are not defined benefit income streams

Policy reference: SS Guide 4.1 Deprivation of Income & Assets

Last reviewed: 9 November 2015