These new rules are designed to encourage the use of certain lifetime income streams which feature payments for life, irrespective of how long a person may live, and reducing access to capital over life expectancy. These new rules can provide what can be attractive means testing outcomes for investors.
It is important to understand that the new rules only apply to an investment in a lifetime income stream made on or after 1 July 2019. The new rules do not apply to account-based pensions or term income streams (including term annuities). Also, for any lifetime income stream investment made before 1 July 2019 the previous rules (known as the “deduction amount” rules) will continue to apply and these rules can also provide attractive outcomes.
What are the changes under the social security income test?
The new rules will assess 60% of payments from lifetime income streams under the income test. For example, where a lifetime income pays income of $5,000 p.a., $3,000 p.a. will be assessed under the income test.
This may be more or less than the income derived from alternate investments but is generally seen as an attractive treatment.
What are the changes under the social security assets test?
The changes to the assets test for lifetime income streams may also generally be seen as attractive and can, for assets test affected clients, improve Age Pension eligibility.
For lifetime income streams that commence on or after 1 July 2019 the new rules will generally assess:
- 60% of the purchase price of the lifetime income stream until age 84, subject to a minimum of 5 years; and
- 30% of the purchase price
This concessional assessment can be attractive compared to alternate investment structures where 100% of any asset is assessable. Where your Age Pension is being reduced because of the assets test, an investment in a lifetime income stream subject to this assessment could immediately improve your Age Pension eligibility.
To find out more about the changes to the means testing of lifetime income streams, and potential impacts on your personal circumstances, contact your financial adviser.