4.9.3.20 Means test assessment of asset-tested income streams (short term)

Introduction

This topic explains the means test assessment of asset-tested income streams (short term) (1.1.A.304):

  • income test assessment of asset-tested income streams (short term), and
  • assets test assessment of asset-tested income streams (short-term).

Overview

Asset-tested income streams (short term) are assessed under the means test as follows:

  • Income test - the asset amount is a financial investment, and the deeming provisions apply (4.4).
  • Asset-test - the asset amount is determined in the same manner as those products with a term greater than 5 years. This group includes term pensions and annuities.

Income test assessment of asset-tested income streams (short term)

An asset-tested income stream (short term) is a financial investment and is, assessed under the deeming provisions (4.4).

Act reference: SSAct section 9(1)-'asset-tested income stream (short term)', section 9(1)-'financial investment', section 1076 Deemed income from financial assets-persons other than members of couples, section 1077 Deemed income from financial assets-members of pensioner couples, section 1078 Deemed income from financial assets-members of non-pensioner couples

Policy reference: SS Guide 4.4 Deeming Provisions

Assets test assessment of asset-tested income streams (short term)

The asset value of an asset-tested income stream (short term) is determined using the following formula:
Purchase price (1.1.P.500) − [((purchase price − RCV) ÷ relevant number) × term elapsed]

The term elapsed is the number of years that have elapsed since the income stream's commencement day (1.1.C.205). The number of years is rounded down to the nearest:

  • half-year, when the asset value is determined on a 6 monthly basis, OR
  • whole year when the asset value is determined annually.

Note: This is the same method used for non-account-based asset-tested income streams (long term).

Example: Sally is 65 years old and single. She purchases a 4-year annuity with a RCV of $20,000 for $150,000. She receives a total payment of $18,337 per year. Monthly payments commence on 1 January. Her assessable asset from 1 January for the first 6 months will be $150,000 − [(($150,000 − $20,000) ÷ 4 years) × 0 years] = $150,000.

Her assessable asset from 30 June in that year will be:
$150,000 − [(($150,000 − $20,000) ÷ 4 years) × 0.5 years] = $133,750.

The following table shows when the asset value is determined for an asset-tested income stream (short term).

If an income stream pays an income support recipient … then the asset value is determined …
once per income year once a year at the start of the contract year.
MORE than once per income year twice a year at the start of each 6 month period.

Note:

  • 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.
  • An asset-tested income stream (short term) can be reduced by a charge or encumbrance on the income stream.

Act reference: SSAct section 1119(4) Value of asset-tested income streams that are not defined benefit income streams

Policy reference: SS Guide 1.1.A.304 Asset-tested income stream (long term, lifetime, short term), 1.1.A.306 Asset-test exempt income stream

Last reviewed: 1 July 2019