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4.9.3.10 General provisions for asset-tested income streams

Summary

This topic explains the general provisions for asset-tested income streams, both long term and short term. It covers:

  • asset-tested income streams (long term)
  • asset-tested income streams (lifetime)
  • asset-tested income streams (short term)
  • account-based income streams and market-linked income streams purchased between 1 June and 30 June
  • asset-tested joint income streams
  • hybrid asset-tested income streams, and
  • asset value after a partial commutation to a lump sum.

Note: All income streams purchased from 20 September 2007 will be asset-tested income streams unless they are defined benefit income streams or are granted relief under exemption provisions specified in 4.9.2.17.

Note: Account-based income streams were previously referred to as allocated income streams.

Asset-tested income stream (long term)

Asset-tested income streams (long term) are income streams where:

  • the term of the contract is for a specified term of more than 5 years (i.e. not for the life of an individual or individuals), OR
  • the term of the contract is for a specified term of less than 5 years AND is equal to or greater than the purchaser's life expectancy, OR
  • the income stream pays for the life of an individual or individuals AND the income stream was purchased or acquired before 1 July 2019.

Note: Account-based income streams are assessed as asset-tested income streams (long term).

Note: Income streams that pay for the life of an individual or individuals purchased or acquired on or after 1 July 2019 are assessed as asset-tested income streams (lifetime).

Act reference: SSAct Part 3.10 Division 1B Income from financial assets (including income streams (short term) and certain income streams (long term)), section 1099B Income from asset-tested income stream (long term), section 1119 Value of asset-tested income streams that are not defined benefit income streams, section 1120 Value of asset-tested income streams that are defined benefit income streams

Policy reference: SS Guide 4.9.3.30 Means test assessment of asset-tested income streams (long term)

Asset-tested income stream (lifetime)

Asset-tested income streams (lifetime) are income streams where:

  • the income stream was purchased or acquired on or after 1 July 2019, AND
  • the income stream ensures that, once the income stream starts paying income, it continues to pay for the remainder of the product owner's life, AND
  • the amount of payment made by the income stream considers the age, life expectancy or other factors relevant to the mortality of the product owner.

Note: Lifetime income streams purchased before 1 July 2019 are assessed as asset-tested income streams (long term).

Act reference: SSAct section 1099DAB Income - asset-tested income stream (lifetime), section 1120AA Value of asset-tested income streams (lifetime) that are managed investments, section 1120AB Value of asset-tested income streams (lifetime) that are not managed investments

Policy reference: SS Guide 4.9.3.35 Means test assessment of asset-tested income streams (lifetime)

Asset-tested income stream (short term)

Asset-tested income streams (short term) are income streams where the term of the product, when purchased or acquired, is 5 years or less, but the income stream is not an asset-tested income stream (long term) or an asset-tested income stream (lifetime).

A full outline of the means test treatment of asset-tested income stream (short term) can be found at 4.9.3.20.

Note: 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 stream, Part 3.10 Division 1B Income from financial assets (including income streams (short term) and certain income streams (long term))

Policy reference: SS Guide 4.4 Deeming provisions, 4.9.3.20 Means test assessment of asset-tested income streams (short term)

Market-linked income streams purchased between 1 June & 30 June

For market-linked income streams purchased between 1 June and 30 June, the income support recipient can defer the commencement of payment until the following financial year, i.e. until any date between 1 July in the calendar year of purchase and 30 June in the following calendar year.

If the income support recipient chooses this option, income will be assessed from the following 1 July. The income amount is determined by dividing the 1 July account balance by the relevant payment factor (4.9.5.70).

For assets test purposes, the account balance is assessed from the date of purchase.

Asset-tested joint income streams

Term annuities can be purchased jointly. The relevant number (1.1.R.135) for joint term annuities will be the term of the annuity. Terms of greater than 5 years will be treated as asset-tested income streams (long term) and terms of 5 years or less will be treated as asset-tested income streams (short term).

For joint asset-tested income streams (lifetime), the threshold day (1.1.T.101) is determined with reference to the older of the joint owners. Joint owners may have different assessment days.

Exception: It is not possible to have a joint account-based or allocated income stream because the Superannuation Industry Supervision (SIS) Regulations 1994 only allow an allocated pension or allocated annuity to be held in the member's name.

Hybrid asset-tested income streams

Some products combine account-based income streams with lifetime income streams. In these cases, the product will be assessed as 2 separate income streams. The account-based component will be assessed as an asset-tested income stream (long term), and the lifetime component will be assessed as an asset-tested income stream (lifetime).

Types of hybrid products include:

  • Guaranteed minimum income for life products, which are account-based income streams with a lifetime component that makes regular payments to an individual once the account balance of the account-based income stream is reduced below a threshold specified in the product's contract.
    • For these products, the lifetime component is considered to have been acquired at the point when the person begins to contribute towards the provision of the guarantee (e.g. through specific fees). Payments made to supplement the account-based income stream component are assessed under the asset-tested income stream (lifetime) arrangements. The lifetime component has its own purchase amount (1.1.P.495), which is assessed separately from the account balance of the account-based income stream component.
  • Lifetime income streams packaged with an account based income stream.
    • For these products, payments made by the lifetime income stream are assessed under the asset-tested income stream (lifetime) arrangements. The lifetime component has its own purchase amount, which is assessed separately from the account balance of the account-based income stream component.
  • Lifetime income streams packaged with term-limited income streams.
    • For these products, payments made by the lifetime income stream component are assessed under the asset-tested income stream (lifetime) arrangements. The lifetime component has its own purchase amount, which is assessed separately from the purchase price (1.1.P.500) attributable to the term-limited income stream.

Asset value after a partial commutation to a lump sum

Where there is a partial lump sum commutation from an asset-tested income stream, the partial commutation does NOT change the relevant number of the income stream. The original relevant number continues to be used after the commutation. Similarly, where an amount is commuted and directly rolled over to create a new asset-tested income stream, the partial commutation does NOT change the relevant number of the original income stream. The original purchase price, however, is reduced by the actual amount commuted to recalculate the new asset value. The new asset value takes into account the new purchase price and the new deduction amount (1.1.D.45).

Example: John purchases a 5 year term annuity for $50,000. At the end of 2 years, the assessable asset value is:
$50,000 − [($50,000 ÷ 5) × 2] = $30,000.

He commutes $6,000 at this point. The new assessable asset value after commutation is:
($50,000 − $6,000) − {[($50,000 − $6,000) ÷ 5] × 2}
= $44,000 − ($8,800 × 2)
= $26,400

His new deduction amount after commutation is now:
($50,000 − $6,000) ÷ 5 = $8,800

For an account-based product (i.e. allocated pension or allocated annuity), the asset value after a commutation is the account balance after the funds have been withdrawn.

Example: Donna purchases an account-based pension for $100,000. Her relevant number is 20. Two years later the account balance is $110,000. At this point she decides to commute $20,000. The new account balance is $90,000.

The new deduction amount is:
($100,000 − $20,000) ÷ 20
= $80,000 ÷ 20
= $4,000

Act reference: SSAct section 9(1)-'relevant number', section 9(1)-'purchase price', section 1119(3) Value of asset-tested income streams that are not defined benefit income streams

Assessment of existing allocated products that are topped-up by additional contributions

Under the Superannuation Industry (Supervision) Regulations 1994, a person cannot increase ('top-up') the capital supporting the existing allocated products using additional contributions.

As such, where an existing allocated product is 'topped-up' by additional contributions it is treated as a new product. This means that the new topped-up product would recommence with a new purchase price (the account balance at changeover date plus the top-up), a new commencement day (the changeover date) and a new relevant number based on the appropriate life expectancy at the changeover date.

Assessment of allocated income streams where the assets backing the income streams are frozen

If some of the assets backing the income stream have been frozen, but at least 1 payment has been made annually, the income stream product will continue to be assessed as an income stream. The assessment recognises that even though some assets are frozen, the assets still exist and have a value. For asset test purposes, the current account balance of the allocated income stream is the assessable asset.

Note: Under the income test, if the relevant minimum payment amount made from the income stream has not been reached for the financial year, it will still be assessed as having paid income at the relevant minimum payment amount and Centrelink will assess the minimum payment for the financial year.

When an income stream cannot make at least 1 payment during a financial year, the income stream ceases to be an income under the SSAct, and will be assessed as a superannuation investment. This will occur from the earlier of:

  • when the income support recipient was informed by their income stream provider that no payment will be received during the financial year, or
  • 30 June for the financial year where no payment has been received.

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