Recent changes pose potential trap for grandfathered pensions

Mr Dunn said these changes, which took place on 1 July, are likely to benefit individuals who want to get more money into super later in life as they need more time to grow their member balance. It will also potentially benefit clients who want to utilise recontribution strategies to minimise tax for non-dependent beneficiaries, such as grown children.

They will also see a “greater intertwining of making contributions whilst drawing down benefits in retirement phase”, he said. 

However, when considering these sorts of strategies, Mr Dunn said SMSF professionals need to pay close attention to any clients with existing income streams that may have been grandfathered before 1 January 2015.

“If we have clients that have pre-existing income streams that qualify for the Commonwealth Seniors Health Card (CSHC), we don’t want to touch those,” he cautioned.

“If we have income streams that were established prior to the 1 January 2015, then the pension that is taken from those is excluded from the calculation. So anything post that date is non-assessable in their hands, but included for qualification purposes both in an Age Pension sense for the income test and also included for qualification for the Commonwealth Seniors Health Card.”

Mr Dunn warned that any decision to merge non-concessional contributions with these existing account based pensions would mean that all the assets, including both the pension and contributions, will count for CSHC and Age Pension purposes.

“So we don’t want to be touching these pre-January 2015 pensions,” he said.

Clients that are more likely to have these grandfathered income streams will be in the 70 to 75 age range as this age group were eligible to start a pension at that point in time, he noted.

“With these concepts of merging and going back and forth with strategies, just be very careful because you may have one pretty angry client if all of a sudden they get knocked out because they now have $30,000 or $40,000 worth of income now counted from that pension when otherwise it was excluded,” he said.

Mr Dunn noted that the Labor government has announced potential changes to the eligibility criteria for the Commonwealth Seniors Health Card.

Labor previously announced that it will look to increase the income test to access to a Commonwealth Seniors Health Card to $90,000 a year for singles, up from $57,761, and to $144,000 a year for couples, up from $92,416).