Income streams

Keep in mind, these are general guidelines only. For more information, you can either:

• visit a service centre
• call the Centrelink Older Australians Line and speak to a Financial Information Service Officer.

What types of income streams there are

Different types of income streams have different effects on your assets test and income test for payments from us.

Income streams include:

• account based pensions or allocated pensions
• account based annuities or allocated annuities
• market linked pensions or term allocated pensions
• defined benefit pensions paid from public sector superannuation schemes and private sector defined benefit funds
• non-defined benefit pensions, which includes lifetime, life expectancy and term products
• military invalidity pensions paid from the Defence Force Retirement and Death Benefits Scheme or Military Superannuation and Benefits Scheme.

There are 2 main types of income streams:

• superannuation pensions
• annuities.

Superannuation pensions

These are income streams paid or purchased from a superannuation fund.

Annuities

These are income streams purchased from life companies. You can buy them with superannuation money or savings.

What types of assets and income tests there are

When we test your assets and income, we treat different types of income streams in different ways. There are 4 categories:

• exempt and partly exempt from the assets test
• asset tested lifetime
• asset tested long term
• asset tested short term.

Exempt and partly exempt from the assets test

These income streams meet all rules in sections 9A, 9B, 9BA or 9BB of the Social Security Act.

Assets test

Defined benefit and military invalidity pension income streams don’t count in the assets test.

If you bought non-defined benefit income streams:

• before 20 September 2004, it doesn’t count in the assets test
• on or after 20 September 2007, it’s not exempt.

If you bought non-defined benefit income streams on or after 20 September 2004 and before 20 September 2007, half its value counts in the assets test. We reduce the amount we count every 6 or 12 months on a straight line basis over the term of the product.

Income test

For non-defined benefit income streams, we assess the gross payment less the deduction amount. The deduction amount is the return of your own capital.

For defined benefit income streams, we assess the gross payment less the deductible amount. Your superannuation fund will calculate the deductible amount. The deductible amount is also the tax free component of your income stream. There is a 10% cap of the income stream’s gross payments for the deductible amount for defined benefits. The cap doesn’t apply to military defined benefit income streams.

For military invalidity income streams, we assess the gross payment less the special reduction amount. The special reduction amount is the amounts that would be the tax free components, worked out under Subdivision 307-C of the Income Tax Assessment Act if it were assumed that the income stream is a superannuation income stream within the meaning of that Act. The special reduction amount is not capped at 10% unless the military invalidity pension is not related to military service.

Asset tested lifetime

This category is for lifetime income streams where both of these apply:

• you purchased the income stream on or after 1 July 2019
• your payments from the income stream will continue for your lifetime.

You can defer the date you start receiving payment from these products.

The assessment day varies depending on:

• your age
• when your payments start
• whether you purchased the income streams with superannuation money or savings.

Assets test

If you purchase your income stream with superannuation money, it doesn’t count in the assets test before assessment day.

If you purchase your income stream with savings, we count the full purchase amount in the assets test before assessment day.

We use the Capital Access Schedule (CAS) to help us determine how much of your income stream we’ll assess. The CAS is a part of the Superannuation Industry Supervision Regulations.

If your income stream complies with the CAS we’ll assess a minimum of 60% of the purchase price. We’ll do this on or after assessment day regardless of how you pay for your income stream.

This drops to a minimum of 30% of the purchase price when we assess it on threshold day. Threshold day is either:

• your 84th birthday
• a minimum of 5 years from the assessment day.

Some products may have a surrender value or death benefit that’s higher than those allowed under the CAS. Where this is the case, we may assess these income streams higher than 60% and 30%.

Income test

If you purchase the income stream with superannuation money, it doesn’t count in the income test until your payments start.

If you purchase the income stream with savings, we treat the income stream as a financial asset until assessment day. As a financial asset, deeming rules will apply.

Once your payments start we’ll assess 60% of the gross payments from your lifetime income stream as income.

Asset tested long term

This category is for income streams that aren’t either:

• exempt or partly exempt from the assets test
• asset tested lifetime income streams purchased on or after 1 July 2019.

And the term of the income stream must be either:

• more than 5 years
• 5 years or less but greater than or equal to your life expectancy.

Assets test

If the income stream has an account balance, the assessable asset value is the account balance.

If it doesn’t have an account balance, the assessable asset value is its purchase price. We reduce this asset value every 6 or 12 months on a straight line basis. Reductions continue for the term of the product down to any residual capital.

Income test

For non-account based income streams, we assess the gross payment less the deduction amount.

We also assess the gross payment less the deduction amount for account based income streams if both of these apply:

• you started your income stream before 1 January 2015
• you’ve been on a pension or allowance without a break since 31 December 2014.

However, we treat account based income streams as financial assets and use the deeming rules if you either:

• purchased the income stream on or after 1 January 2015
• didn’t get your pension or allowance payments from us for any reason after 31 December 2014.

Asset tested short term

This category is for income streams with a term of 5 years or less and aren’t any of the following:

• exempt or partly exempt from the assets test
• asset tested long term
• asset tested lifetime.

Assets test

The assessable asset value is both:

• the purchase price of the income stream
• reduced every 6 or 12 months on a straight line basis over the product’s term.

The assessable asset value can’t be less than any residual capital value.

Income test

We treat these income streams as financial assets and use the deeming rules to calculate assessable income.

What you need to tell us

We regularly review income streams. You still need to tell us about any of the following:

• you have bought a new income stream
• you have taken a partial or made a full commutation of an income stream
• your income stream has closed or has no funds remaining.

When you give us this information, you need to also tell us:

• where you transferred the money from to purchase your income stream
• how much of the purchase price you got back, if any, and when your income stream closed.

You must let us know about these changes within 14 days. If you don’t, we may overpay you and you’ll need to pay it back.

You’ll need to give us a copy of either:

• your income stream schedule
• a details of income stream product form.

The income stream schedule or the form must be completed by one of the following:

• your income stream provider
• the trustee or administrator of your self-managed superannuation fund (SMSF)
• the trustee of your small APRA fund (SAF).