Lawyer sheds light on pre-2015 pension concerns

The partial commutation of a pre-January 2015 account-based pension will not result in the loss of grandfathering for Commonwealth Seniors Health Card purposes, provided the card was held continuously, says an industry lawyer.

DBA Lawyers senior associate William Fettes says that due to the transfer balance cap, people receiving account-based pensions (ABPs) with pension capital greater than $1.6 million will need to partially commute their account-based pension by at least the excess amount above $1.6 million before 1 July 2017.

“A large number of such clients will have commenced an ABP prior to 1 January 2015 and, therefore, may have grandfathering in respect of the income-testing regime administered by the Department of Social Services for the Commonwealth Seniors Health Card [CSHC],” Mr Fettes said.

This has left SMSF practitioners and their clients unsure of whether partially commuting a pre-January 2015 ABP in order to comply with the transfer balance cap will affect grandfathering for CSHC purposes.

“We consider that the partial commutation of a pre-January 2015 ABP does not result in loss of grandfathering for CSHC purposes, provided that the CSHC was held continuously from 31 December 2014,” Mr Fettes said.

He said this view is consistent with the Department of Social Services’ (DSS) Guide to Social Security Law.

The guide states that a person who owns an account-based pension purchased prior to 1 January 2015 and who is the holder of a CSHC on 31 December 2014 will not have their account-based pension included in the income test as long as they continue to hold the CSHC and retain the same account-based pension.

“If the person ceases to be the holder of a CSHC for any period of time, their account-based pension will be subject to the income test if they become a CSHC holder again,” Mr Fettes warned.

The guide also makes it clear that if the individual purchases a new account-based pension after 31 December 2014 or rolls over an existing account-based pension into a new account-based pension after 31 December 2014, their new account-based pension will be subject to the income test.

“Based on [this], partial commutation of an ABP will not bring that ABP to an end as it does not fall under the two specified categories recognised by DSS,” Mr Fettes said.

“Naturally, this is great news for fund members with pre-January 2015 ABPs who have held their CSHC continuously over this time and will be partially commuting their ABP to stay within their personal transfer balance cap by 30 June 2017.”

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