New regulations regarding deeming rules for Age Pension took effect on 31 March of this year. For many Australians, the new deeming regulations will decrease the amount they can collect on Age Pension. For the purposes of this post, we will try to simplify the analysis of the changes.
What is Deeming?
If you own investments, such as term deposits or shares, the Government uses a formula to “determine” your “earnings” from them and counts that number as “assets” on your Age Pension income test. This “income” is called “deemed income.” Deemed income assumes that you are making a certain amount of income on your investments; deemed income may be more or less than you are actually making.
How Superannuation Funds are Currently Assessed
The current formula for counting superannuation pensions against the Age Pension income test counts both the account balance and return of capital of your super fund.
For the Age Pension income test, any income stream that you are now taking from your super fund is counted by a formula that counts what you have received for the year and then subtracts a deduction amount. The deduction is to ensure that income isn’t counted on both the income and assets tests.
On the allocated pension, which is older, or the account-based pension, which is newer, the entire balance of your account counts towards the assets test. A term allocated pension or older complying pension may not require you to count any of your pension assets toward the test or may only make you count half.
Grandfathering
Pensions and superannuation funds that started before 1 January 2015 will be grandfathered and tested under previous rules. All pension income will use a deductible amount to adjust “income” that is used for the Age Pension income test. However, if you change your superannuation product on or after 1 January 2015, the new rules will apply. If you are not receiving Age Pension as of 1 January 2015, the new rules will apply.
What We Can Do for You
Our financial planners are superannuation specialists who can help you navigate the maze of regulations and maximise your retirement income. Those who finalise their super funds by 1 January 2015 can take advantage of grandfathering.
Call (08) 6462 0888 today.
