Will the changes reduce the amount you receive?
If you’re eligible, it’s not too late to set up an ABP before 1 January 2015 under the current rules. In fact, doing so may preserve your government age pension entitlements.
From 1 January 2015, new Centrelink rules may affect your future government age pension entitlements. Let’s look at what the changes could mean for you. All account-based pensions (ABPs)—including allocated pensions—set up after 1 January 2015 will in future be assessed the same way as other financial assets such as bank accounts and term deposits. So if you’re receiving a government age pension it may be reduced as a result. This also applies to any ABPs set up before 1 January that aren’t eligible to preserve the current rules.
What the changes mean for Jack and Jill
Jill and Jack are both aged 65. They’re retired with a combined super fund balance of $273,000 and no other assets. By staying in super they currently receive close to the full Government age pension under the income test. If they start an ABP prior to 1 January 2015, they will be entitled to the full Government age pension under the income test (depending on how much income they withdraw).
If they transferred the $273,000 to an ABP after 1 January 2015, then deemed income of $8,361 per year would be counted towards their income test. This would reduce their combined age pension by about $19 per fortnight ($494 pa). At current levels of 2% and 3.5%, deeming rates are comparatively low. In the event that the deeming rate increased to say 5% and 6.5% per year, their age pension would be reduced by a total of $176 per fortnight ($4,584 pa).
If they transferred the $273,000 to an ABP before 1 January 2015, they could draw an annual income of up to $12,627 before their age pension is reduced under the income test (assuming Jill is an automatic reversionary on Jack’s ABP).
This example is illustrative only and is not an estimate of the investment returns you will receive or fees and costs you will incur.
The example is based on the following assumptions:
(a) Rates used are valid up to 19 September 2014 (includes maximum pension supplement and clean energy supplement).
(b) No other income or assets have been factored into the calculation (eg lifestyle assets
Consider the following to lock in the existing rules and benefits for the future:
1. Consolidate super
Will consolidating super and other investments in your ABP help you achieve your goals? If you don’t bring extra cash/other super in before 1 January 2015, you will not be able to lock in the potential benefit this extra money could generate under the existing rules. You will however, still have the option to invest this money into a second ABP, which will still provide you with an income, but which won’t have the benefit of the existing rules.
2. Apply for a government income support payment
Remember that different government income support types take varying times to set up, and some have a waiting period. So it’s important to act now.
3. Set up an ABP with the correct beneficiary type
Your spouse could miss out on the benefits of your ABP if something happens to you, and you haven’t nominated them as a reversionary beneficiary before 1 January 2015. Do so and in the event of your passing, the ABP automatically transfers to them with the same benefits you had, provided your spouse also receives an income support payment at that time.
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