Applied Financial Planning
New social security rules for lifetime income streams: Part one
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New legislation passed parliament that changes the social security assessment of lifetime income streams including lifetime annuities.

Under the new rules, lifetime income streams purchased on or after 1 July 2019 will be assessed under new income and assets test rules. Grandfathering applies to lifetime income streams purchased prior to this date.

Whether a client is better off purchasing a lifetime income stream before or after 1 July 2019 is a complex question. 

Many clients who purchase an income stream on or after 1 July 2019 will receive a higher rate of age pension in the initial years but a lower rate of age pension in later years when compared to the current rules. Whether they prefer an upfront or postponed benefit will depend on the client's circumstances.

This paper is the first part in a two-part series. In Part One, we compare the current assessment of lifetime income streams with the new rules that apply for lifetime income streams purchased on or after 1 July 2019.

In Part Two (published next week), we discuss the more complex aspects of the new rules including the assessment of deferred income streams, reversionary income streams and annuities than contain life insurance.

Background

From 1 July 2017, the Government made the Treasury Laws Amendment (2017 Measures No.1) Regulations 2017, which amended the superannuation and taxation laws to introduce a new set of design rules for lifetime superannuation income streams.  The new rules allow superannuation funds and life insurance companies to offer a new range of "innovative retirement income stream products" including deferred annuities and group self-annuitised products.  A key aim of these new products is to better manage longevity risk in retirement.

However since the introduction of the new rules there has been a limited number of innovative income stream products released in the marketplace.  One reason for this delay has been uncertainty regarding the social security assessment of these new products.

This uncertainty has now been removed with the passing of Social Services and Other Legislation Amendment (Supporting Retirement Incomes) Act 2019 implementing a new means test assessment for lifetime income streams purchased on or after 1 July 2019.

However the new rules do not just apply to innovative retirement income streams, they apply to all lifetime income streams purchased on or after 1 July 2019 including immediate lifetime annuities.

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