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Superannuation pensions can be subject to risks in ‘pension grandfathering’ 

Superannuation pensions
Tony Zhang
08 September 2021 — 2 minute read

SMSFs with account-based pensions may run into risks of being grandfathered for the purposes of the income tests for the age pension or Seniors Health Card as seen through a recent AAT decision, according to a law firm.

In Reiter and Secretary, Department of Social Services (Social services second review) [2020] AATA 2212, the Administrative Appeals Tribunal (AAT) had affirmed the cancellation of the applicant's Seniors Health Card after a reassessment of the applicant's entitlement to the card.

Townsend Business and Corporate Lawyers superannuation consultant Michael Hallinan said the lesson to be learned from this case is that before any action is taken in respect of a superannuation pension, always consider whether the pension is subject to Centrelink “pension grandfathering”.

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In this case, Dr Reiter, the applicant, while not receiving an age pension (due to the means tests), had been granted a Seniors Health Card. The applicant commenced an account-based pension in November 2014. 

As the applicant held a Seniors Health Card on 31 December 2014, his entitlement to the Card was grandfathered by not having the account-based pension included in the incomes means test which is used to determine entitlement to the Card.

In April 2017, the applicant wished to top up his pension. Consequently, he rolled back the account-based pension to accumulation phase, merged the roll-back amount with the top- up amount and then commenced a new account-based pension on 17 April 2017.

In January 2019, the Applicant’s entitlement to the Seniors Health Card was reassessed and his entitlement to the Card was cancelled.

Centrelink justified the cancellation of the Seniors Health Card on the basis that the April 2017 pension was a new pension and that the November 2014 pension had ceased. 

"Consequently, in determining the entitlement to the Card, deemed income from the April 2017 pension was now counted in applying the Seniors Health Card income test," Mr Hallinan said.

"Despite the pension provider retaining the same name and account number as applied to the November 2014 pension when the provider issued the April 2017 pension, Centrelink held that the roll back of the pension terminated the pension and, in any event, the new pension had a materially greater pension balance."

The applicant then referred the card cancellation decision to the AAT which upheld Centrelink’s cancellation decision and the basis for the decision.

Mr Hallinan noted that the outcome could have been different if the November 2014 pension had not been rolled back but continued and the top-up amount had been used to commence a second account-based pension.

"In this situation, the November 2014 pension would have continued to be disregarded for the purposes of applying the Seniors Health Card incomes test with only the much smaller second pension being assessed. In this case, the applicant would not have 'failed' the incomes test for the Seniors Health Card,” he explained.

"The lesson is very simple. If an account-based pension commenced before 1 January 2015, then the pension may be subject to the very valuable privilege of being grandfathered for the purposes of the income tests for the age pension or Seniors Health Card. This is a privilege which should not be lost without careful consideration."

Tony Zhang

Tony Zhang

Tony Zhang is a journalist at Accountants Daily, which is the leading source of news, strategy and educational content for professionals working in the accounting sector.

Since joining the Momentum Media team in 2020, Tony has written for a range of its publications including Lawyers Weekly, Adviser Innovation, ifa and SMSF Adviser. He has been full-time on Accountants Daily since September 2021.

Superannuation pensions can be subject to risks in ‘pension grandfathering’ 
michael hallinan smsf
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