Super back on the government’s agenda
Parliament has been sitting for less than one month, but super is already up for debate.
There was action out of the lower house last week, which is worth mentioning, such as the introduction of the Social Services and Other Legislation Amendment Bill 2013.
What does this mean?
The Bill will align the income test treatment of account-based superannuation income streams, for products assessed from 1 January 2015, with the deemed income rules applying to other financial assets. Account-based income streams held by income support recipients immediately before 1 January 2015 will continue to be assessed under the previous rules unless recipients choose to change to a product that is assessed under the new rules.
Generally, to calculate the income assessed in relation to an income support recipient’s financial investments, deeming rates are applied to the total market value of their financial investments. That is, financial investments are assumed to be earning a certain rate of income, regardless of what they actually earn.
Currently, the first $45,400 for a single pensioner and $75,600 for a pensioner couple of financial investments is deemed at 2.5 per cent per annum. Any financial investments over these thresholds are deemed at 4 per cent per annum.
The policy rationale for this measure is that, by treating all financial investments in the same way, the deeming rules encourage people to choose investments on their merit rather than on the effect the investment income may have on the person’s income support entitlement.
This measure extends the income deeming provisions to any asset-tested income stream (long term) that is an account-based pension, or an equivalent annuity product. The extension of the deeming rules that currently apply to financial assets, such as bank accounts, shares and managed funds will ensure that people with similar financial assets are treated consistently under the income support system.
What do SMSF members and trustees need to be thinking about?
Many retirees seeking to optimise their financial situation under the Centrelink means tests currently consider strategies involving non-deemed investments or seeking out returns on deemed assets in excess of the deeming rates. Account-based pensions have featured in the first of these strategies.
Both the assets test and income test determine the actual amount of Centrelink pension payable to an individual.
Taking both of these tests into account, those members and trustees most likely to be adversely affected by the proposed change are those whose account balances are:
• Greater than the point at which deemed income exceeds the income-free area (currently $152 per fortnight for a single person and $268 per fortnight for a couple combined), but
• Less than the point at which the assets test determines the benefit paid.
Kate Anderson is head of technical at SuperIQ.