Tasmanian Association of State Superannuants
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This important information has been provided by Scott Donoghue, Certified Financial Planner and regular ABC radio talkback presenter for the benefit of TASS members.

November 2014

It sometimes feels like Centrelink are always changing the rules. Many of these are minor changes that you may not even notice. However, one change commencing 1 January, 2015 may one day affect a lot of people, especially those predominantly affected by the Income Test. Many retired RBF members may be asking, “Will this change affect me?”

Australian Bureau of Statistics data indicate that the vast majority of Australians in retirement will be eligible at some point for the Age Pension and the associated benefits. Only around 20% of retirees remain totally self-funded until they die. Even if you don’t qualify for part Centrelink Age Pension now, if you are member of a couple, being either married, de facto or same-sex, did you realise the limits increase markedly if one (or both) of you has to go into Aged Care? For a couple separated by illness such as when one of you may need to go into Aged Care, you can both qualify for some Age Pension and all of the benefits the Pension card brings if, from an asset test viewpoint, you have less than $1,410,500 plus your home (assuming it’s on less than 1 ha & one of you still resides in it) and from an income test viewpoint, less than $95,035 per annum Centrelink assessable income. Note that the assets and income that are counted against you are determined using Centrelink rules whereby not all assets and income are assessed equally or even counted at all in some cases. Furthermore, the Centrelink assessment methodology differs from that applied for tax purposes.

From 1 January, 2015 there is a significant change in how a new Allocated Pension (aka Account Based Pension or ABP) will be assessed under the Income Test. These are where you control your Super in retirement and gradually draw an income from it. They are very flexible as you can vary the drawdown, access capital, and any funds still invested when you die are refundable. People with these are only affected if you are seen to start a new one after 1 January, 2015. As is often the case, this Centrelink change may not be better for you. This change may in time see many people receiving a lower amount of Age Pension, or even losing the Age Pension itself. Additionally, if you are in or needed to go into Aged Care, this change may possibly see you paying more in Aged Care fees depending on your financial structures, financial position and what action you take in relation to your investments after 1 January, 2015

The good news is if you have your financial affairs structured in a certain manner prior to 1 January, 2015 and are also in receipt of a means tested Centrelink or Veterans Affairs (DVA) benefit at that point, the existing beneficial treatment will continue, potentially throughout your retirement. The reason this change may affect RBF members more than the general population is that many RBF members go into retirement with the RBF Old Scheme Life Pension (that is the defined benefits contributory scheme which was closed to new entrants on 15 May 1999) as well as an Account Based Pension (ABP), often set up in their partner’s name.

The RBF Life Pension is Centrelink asset test exempt but generally not very helpful in reducing Centrelink assessed income. An ABP is currently treated generously under the Centrelink income test, but fully assessed under the Centrelink asset test. For Centrelink purposes each investment has its own strength and weakness thus using a combination can often maximise your Centrelink entitlement, hence the popularity of this approach. The new rule change will see people fall into one of two categories. The first will continue to receive the very beneficial treatment under the Centrelink income test. The second group will be those who no longer receive this concessional treatment, rather the entire ABP will then be assessed differently using the Centrelink income test.

How will Centrelink do this? The method used from next January will be ‘deeming’, whereby Centrelink will notionally dictate the amount of interest they think you should be earning, regardless of what you are getting, and that is what is counted against you. It wasn’t many years ago that they deemed that the money you had earned up to 6% per annum even though many people at the time had their investments actually going backwards as result of the GFC.

Did you know that if at any point in the future after 1 January, 2015 you change your ABP provider, you will then permanently lose the existing Centrelink beneficial income test treatment. Whilst not set in concrete, current indications are that RBF are in the process of examining who may replace them as the provider of your ABP. This is in line with the recommendations of the Price Waterhouse Cooper review (available on RBF website).

Let’s hope you really like your ABP provider’s service standards, fees, investment options and the like by January 1, 2015 as you can’t make your own choice and change provider, as you currently can do, without then permanently losing the existing beneficial Centrelink treatment. Effectively you have less than 6 months to make sure your ABP is structured correctly and undertake any changes. Even if you believe everything is set up correctly, there is a trap which may affect a couple if the ABP owner dies after 1 January, 2015. Unless the existing ABP was structured from commencement as a reversionary Account Based Pension, then upon your death the ABP left to your partner will then lose the existing beneficial Centrelink treatment.

What can you do? During the next few months it is very important for those considering retirement and who will be age 65 or over before the end of this year or, members of a couple holding an Account Based Pension with RBF, or another superannuation fund, and the ABP owner is on a Centrelink (or DVA) means tested benefit such as Age Pension, Disability Support Pension et cetera to seek specialist financial planning advice. Especially where you are predominantly affected by the Centrelink income test.

Fortunately, you are now aware of this change, and if you fit the relevant criteria as outlined above, with excellent financial planning advice before 1 January, 2015, you may be able to take more control of your affairs and better protect what you have thereby saving you many thousands of dollars that may otherwise be lost in reduced Age Pension payments or higher Aged Care fees.

Scott Donoghue is a Principal and authorised representative of Hillross Financial Services Ltd, ABN 77003323055 and AFSL 232705. He is based in Hobart and is often on ABC radio in Tasmania and Queensland as a Financial Planning specialist. He is a Certified Financial Planner (CFPTM), SMSF Specialist AdviserTM, and Commissioner for Declarations. He holds various University qualifications including a Master’s Degree in Financial Planning. For further information contact Scott at north.hobart@hillross.com.au or 6231 0177. This article is general in nature thus you should seek personal financial planning advice before taking any action in relation to the above.