4.9.3.40 Account-based Income Streams - Relevant Number where Reversionary Beneficiary Exists

Summary

This topic ONLY covers the method of assessment of a relevant number for an ACCOUNT-BASED income stream. This includes:

• relevant number for an account-based income stream where there is a reversionary beneficiary, which includes:
  • where the trustee has ABSOLUTE discretion, and
  • where the trustee DOES NOT have ABSOLUTE discretion,
• assessment where the reversionary beneficiary is a dependant who is not the income support recipient's partner, and
• assessment where a reversionary beneficiary is added or removed after commencement of the income stream.

Relevant number for an account-based income stream where there is a reversionary beneficiary

Where no reversionary beneficiary is specified then the relevant number is based on the life expectancy of the primary beneficiary at the commencement day, refer to 4.9.3.30.

Where a reversionary beneficiary is specified then 'Where the trustee has ABSOLUTE discretion' and 'Where the trustee DOES NOT have ABSOLUTE discretion' below explains how to determine the relevant number.

Note: These guidelines for determination of relevant numbers apply to account-based income streams that are paid as pensions. They also apply in respect of account-based income streams that are paid as annuities, except that the relevant provisions are specified in a contract rather than in the governing rules of a superannuation fund.

Where the trustee has ABSOLUTE discretion

Where a trust deed of an account-based income stream provides the trustee with a genuine 'absolute discretion' then the relevant number is the 'life expectancy of the primary beneficiary'. Absolute discretion is where a trustee can decide:

• HOW a reversionary benefit is to be paid (income stream or lump sum), or
• WHO is to receive a reversionary benefit, or
• HOW a reversionary benefit is to be paid and WHO is to receive a reversionary benefit.

A trustee has absolute discretion, if the reversionary beneficiary CANNOT be paid UNTIL the trustee exercises the discretion.

In the situation where the trustee has absolute discretion, the relevant number is the life expectancy of the primary beneficiary even when a reversionary beneficiary is specified.

When the primary beneficiary dies and the trustee exercises an absolute discretion to pay a new income stream to a beneficiary, the new relevant number is based on the life expectancy of the new beneficiary at the date the trustee exercises their absolute discretion. In these circumstances, the INCOME STREAM will have a new purchase price that is the remaining account balance at the time the discretion is exercised, and a new commencement day (the changeover date), relevant number and annual payment.

Where the trustee DOES NOT have ABSOLUTE discretion

The following table shows how to determine the relevant number where there is specific direction to the trustee regarding the reversionary beneficiary and the way in which the benefit is to be paid.

Note: Where the directions are that the income stream is to revert to the reversionary beneficiary, the income stream retains the purchase price and commencement day of the original income stream.

When the primary beneficiary dies and the trustee exercises a limited discretion to pay a benefit as an INCOME STREAM to a new beneficiary, then the relevant number is the new beneficiary's life expectancy at the time the new income stream commences. This is also the case where the benefit is specified originally to be paid as a LUMP SUM, however the trustee exercises a limited discretion to pay the benefit as an INCOME STREAM. In these circumstances, the INCOME STREAM will have a new commencement day (the changeover date), relevant number and annual payment.

Assessment where the reversionary beneficiary is a dependant who is not the income support recipient's partner

The reversionary beneficiary may be a dependant who is not the income support recipient's partner.

In these cases, the greater of the income support recipient's life expectancy, or the specified period for which the income stream can be paid to the dependant under the terms of the trust deed, is taken into account in determining the relevant number to be used while the income support recipient is receiving the income stream payments. Depending on whether or not the trustee discretion is absolute (see above), the treatment will be the same as that applied to other beneficiaries (e.g. a partner).

Assessment where reversionary beneficiary is added or removed after commencement of the income stream

Some income stream providers may allow, under the superannuation fund's trust deed, for a reversionary beneficiary to be added or removed after commencement of an account-based income stream. Otherwise, adding or removing a reversionary beneficiary may result in the old income stream being commuted, and a new income stream being started with the new arrangements (i.e. a new reversionary beneficiary being added or a previous reversionary beneficiary being removed).

If an income support recipient adds a reversionary beneficiary to the governing rules, or contract, covering an income stream after payment commences, the above provisions regarding trustee discretion need to be applied to calculate the relevant number.

Where an income support recipient removes a reversionary beneficiary the above provisions need to be applied to determine the relevant number of the primary beneficiary and any remaining reversionary beneficiaries. It may be necessary for Centrelink to recalculate the deduction amount and assessable income.