The Guides to Social Policy Law is a collection of publications designed to assist decision makers administering social policy law. The information contained in this publication is intended only as a guide to relevant legislation/policy. The information is accurate as at the date listed at the bottom of the page, but may be subject to change. To discuss individual circumstances please contact Services Australia.

4.9.2.50 Joint income streams

Summary

This topic covers:

  • lifetime joint income streams
  • death of an owner of a joint lifetime income stream
  • life expectancy joint income streams purchased prior to 20 September 2004
  • life expectancy joint income streams purchased from 20 September 2004 to 31 December 2005, and
  • life expectancy joint income streams purchased from 1 January 2006 and before 20 September 2007.

Note: Income streams purchased or acquired from 20 September 2007 will be assessed as asset-tested income streams unless they are defined benefit income streams (1.1.D.47) or military invalidity pension income streams (1.1.M.138) or are granted relief under provisions specified in 4.9.2.17.

Explanation: An income stream can be jointly owned. The income stream payments are made to each owner of the joint income stream. An income stream that has a single owner with a reversionary beneficiary/s is NOT a joint income stream.

Note: Joint income streams can only be purchased with ordinary money, and not superannuation money. As market-linked income streams can only be purchased with superannuation monies (under the Superannuation Industry (Supervision) Act 1993), these products cannot be purchased jointly.

Lifetime joint income streams

A couple can jointly purchase an ATE lifetime income stream. Under SSAct section 9A the relevant number (1.1.R.135) of a joint lifetime income stream will be based on the partner with the longer life expectancy.

For lifetime income streams purchased:

  • before 20 September 2004, the guarantee period can be up to a maximum of 10 years (refer to 4.9.2.60)
  • on or after 20 September 2004, the guarantee period can be up to the lesser of
    • the primary beneficiary's life expectancy at purchase or, if life expectancy is not a whole number, life expectancy rounded up to the next whole number, or
    • 20 years.

For joint lifetime income streams, it is allowable to use the longer of the 2 joint beneficiaries life expectancies when determining the maximum allowable guarantee period.

Example: John, aged 65, has a life expectancy of 16.21. Anne, aged 63, has a life expectancy of 21.54. They would like to purchase a joint lifetime annuity with ordinary money.

The longer of the 2 beneficiaries life expectancies is 21.54. Therefore, the maximum guarantee period they could choose is 20 years.

Act reference: SSAct section 9A(3) Matters not required of income stream

Policy reference: SS Guide 1.1.R.135 Relevant number, 4.9.2.10 Characteristics of pre-20/09/04 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, 4.9.2.60 Sections 9A (Lifetime) & 9B (Life Expectancy) of the SSAct Applying Prior to 20/09/2004

Death of an owner of a lifetime joint income stream

SSAct Section 9A(2A) ensures jointly owned income streams retain ATE status on the death of one of the owners, even if the total income stream payments are reduced as a result of the death.

Explanation: The Family and Community Services Legislation (Simplification and Other Measures) Act 2001 introduced some minor amendments to the income streams provisions. This included a provision to allow the asset test exemption to be retained by all jointly owned lifetime income streams when one of the owners dies. This is given effect by SSAct section 9A(2A). The amendments allow the single income stream to be less than the joint income stream in the year that the person commences receiving the single income stream.

Example: On 1 February 1999 Jim and Mary commenced a $20,000 a year ATE joint lifetime income stream. After the death of Jim on 1 May 2002, Mary continued to receive $15,000 as a single income stream. For Mary, the single lifetime income stream would continue to be ATE.

As with other income stream products, in order to be classed as ATE, joint income stream products must continue to satisfy the requirements of the SSAct subsection 9A(2).

Act reference: SSAct section 9A Meaning of asset-test exempt income stream—lifetime income streams

Life expectancy joint income streams purchased prior to 20/09/2004

When a life expectancy joint income stream is purchased, each member MUST meet the life expectancy requirements of SSAct section 9B(2)(a) to gain an asset test exemption (refer to 4.9.2.60). The income stream must also meet all other requirements of SSAct section 9B. This effectively means that, unless both 'owners' have reached age pension age and have life expectancies greater than or equal to 15 years, they will be unable to obtain ATE status for their joint income stream product.

Explanation: If a couple choose to purchase a joint life expectancy income stream, then for the income stream to be ATE it must meet all of the required characteristics for each partner. That is, both partners must be at or over age pension age and the term must meet the specific life expectancy requirements for each partner. If one member of a couple had a life expectancy under 15 years while the other member was over 15 years, then the product could not be ATE as it is required, under SSAct section 9B(2)(a)(i), to have a term of at least 15 years.

The relevant number of a joint life expectancy income stream will be the term of the income stream.

Example: Bob and Jane each retire at age 65. Bob's life expectancy is 16.21 years and Jane's life expectancy is 19.88 years. They purchase a joint life expectancy income stream for a term of 15 years. This satisfies the requirement that the term of the life expectancy income stream is between 15 years and the life expectancy rounded up to the next whole number. Provided all other requirements of SSAct section 9B are met, this would be an ATE income stream.

If the income stream meets the characteristics for one 'owner' but not the other, then it is an asset-tested income stream.

Example: If Bob and Jane purchased a joint income stream with a term of 20 years, the product would be asset tested for both members of the couple as the term does not satisfy the characteristics for asset test exemption for Bob (because the term exceeds his life expectancy rounded up to the next whole number (that is, 17)).

On the death of one owner the income stream will continue to be ATE provided that there is no change to the income stream that is not in accordance with SSAct section 9B (refer to 4.9.2.60).

Act reference: SSAct section 9(1)-'relevant number', section 9B Meaning of asset-test exempt income stream—life expectancy income streams

Policy reference: SS Guide 1.1.R.135 Relevant number, 4.9.2.10 Characteristics of pre-20/09/2004 asset-test exempt income streams, 4.9.2.30 Income test assessment of asset-test exempt income streams, 4.9.2.60 Sections 9A (Lifetime) & 9B (Life Expectancy) of the SSAct Applying Prior to 20/09/2004

Life expectancy joint income streams purchased from 20/09/2004 to 31/12/2005

A joint life expectancy income stream will be granted a 50% asset-test exemption where:

  • for each of the joint beneficiaries, the term is within one of the life expectancy ranges allowed under SSAct section 9B(2B). There will be 2 ranges, one for each joint beneficiary under SSAct section 9B(2B), AND
  • both joint beneficiaries have specified the other as their reversionary partner as defined in SSAct section 9B(6). This means that only joint life expectancy products purchased by couples can be granted ATE status.

In effect, the joint income stream's term could be based on 2 ranges - one for each joint beneficiary under SSAct section 9B(2B). Where there is an overlap between the ranges, a term can be selected from the lowest to the highest number. It is possible (see example below) for an overlap not to exist. Where this occurs those numbers between the 2 ranges cannot be selected.

A jointly owned life expectancy income stream must also meet all the other requirements of SSAct section 9B to be granted ATE status.

Example: Fred, aged 65, has a life expectancy of 16.21 and 5 years younger (age 60) life expectancy of 20.05. Wilma, aged 62, has a life expectancy of 22.39 and 5 years younger (age 57) life expectancy of 26.74.

They would like to purchase a joint life expectancy income stream with ordinary money. The selected term must be a whole number.

  • Based on Fred's life expectancy, the term could be between 17 years (life expectancy of male (rounded up) from 16.21) and 21 (life expectancy of male at age 5 years younger (rounded up) from 20.05).
  • Based on Wilma's life expectancy, the term could be between 23 years (life expectancy of female (rounded up) from 22.39) and 27 (life expectancy of female at age 5 years younger (rounded up) from 26.74).

Therefore, the allowable range is between 17 and 21 years or 23 and 27 years. Fred and Wilma cannot select a term of 22 years.

Life expectancy joint income streams purchased from 01/01/2006 & before 20/09/2007

A joint life expectancy income stream will be granted a 50% asset-test exemption where:

  • for each of the joint beneficiaries, the term is within one of the life expectancy ranges allowed under SSAct sections 9B(2E) and 9B(2F). In most cases there will be only one range for both beneficiaries but, if the joint beneficiaries are close to 100 years of age, there may be 2 ranges, that is, the allowable term for one of the primary beneficiaries does not fully overlap with the allowable term for the other primary beneficiary, AND
  • both joint beneficiaries have specified the other as their reversionary partner as defined in SSAct section 9B(6). This means that only joint life expectancy products purchased by couples can be granted ATE status.

A jointly owned life expectancy income stream must also meet all the other requirements of SSAct section 9B to be granted ATE status.

Example: Harry, aged 65, has a life expectancy of 17.70 and 5 years younger (age 60) life expectancy of 21.66. Hilda, aged 62, has a life expectancy of 23.71 and 5 years younger (age 57) life expectancy of 28.10.

They would like to purchase a joint life expectancy income stream with ordinary money. The selected term must be a whole number.

  • Based on Harry's life expectancy, the term could be between 18 years (life expectancy of male (rounded up) from 17.70) and 35 (that is, the number of years (rounded up) from when the income stream commences until Harry turns 100). Harry's life expectancy at 5 years younger is not relevant as a term based on life expectancy at age 5 years younger is shorter than one based on Harry's turning 100.
  • Based on Hilda's life expectancy, the term could be between 24 years (life expectancy of female (rounded up) from 23.71) and 38 (that is, the number of years (rounded up) from when the income stream commences until Hilda turns 100). Hilda's life expectancy at 5 years younger is not relevant as a term based on life expectancy at age 5 years younger is shorter than one based on Hilda's turning 100.

Therefore, the allowable range is between 18 and 38 years.

Act reference: SSAct section 9B(2B) Term of the income stream, section 9B(2E) If, on an income stream's commencement day …, section 9B(2F) For the purposes of paragraph (2E)(c) …, section 9B(6) In this section …

Policy reference: SS Guide 4.9.2.15 Characteristics of asset-test exempt income streams purchased from 20/09/2004 & before 20/09/2007

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