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

This paper is the second part in a two-part series. In part two, we will now 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.

In part one (published last week), we compared the current assessment of lifetime income streams with the new rules that apply for lifetime income streams purchased on or after 1 July 2019.

Deferred income streams

Under the new rules that permit superannuation funds and life insurance companies to provide "innovative retirement income stream products", an important change is the ability to provide deferred income streams.

A deferred income stream is an income stream that commences payments more than 12 months after it's acquired.

For example, a client may purchase a deferred income stream at age 60 for $100,000 that does not commence paying an income stream until they reach age 80. 

Under the deferred income stream rules, once the income stream payments commence, they must be paid at least annually for the remainder of the client's lifetime.

The rationale for deferred income streams is to assist in meeting longevity risk by providing an income stream at a specified future date for the rest of the client's (and in some cases reversionary beneficiary's) lifetime. 

Social security assessment

For social security purposes, the assessment depends on whether the deferred lifetime income stream is purchased with superannuation or non-superannuation money.

Superannuation

Where a deferred lifetime income stream is purchased with superannuation monies:

Income test

  • No income is assessable prior to payments commencing.  This may assist income tested clients to receive a higher rate of Centrelink entitlements during the deferral period.  
  • Once payments commence, 60% of the annual payments are assessable.

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