Pensions under threat

It used to be that Account Based Pensions (ABP) were Centrelink “friendly”.

That is going to change when the Federal Government’s new legislation for Account Based Pensions (ABP) kicks in on 1 January 2015.

There will be a lot of changes around pensions come the new year. For instance, currently, little or no income from an ABP is counted under the Income Test for most recipients. At the start of 2015, these ABP's will be subject to the deeming rules just like any other savings or investments.

But all those who have existing ABP's in place as at 1st January AND receive a part Centrelink pension, or who currently have a Commonwealth Seniors Health Card, will not affected by the change. They will be “grandfathered”.

However there are a few "hidden" issues which are not widely known. One that is particularly significant is when one partner of a couple dies: if there is no binding reversionary pension option in place, then the other half of the couple will have the ABP treated as a new ABP and “deemed” for the Income Test.

It is important to note that having a binding death nomination in place is not good enough – at the time death the income support recipient of the primary pensioner must have in place a binding reversionary pension nomination for it to be treated under the "old" rules.

If you change your ABP provider after the 1st January, 2015 it will be treated “new” investment and deemed for the Income Test.

If you have a Superannuation account maybe this should converted to a ABP before the end of the year and receive favourable Centrelink treatment.

Currently, an ABP are counted against the Centrelink income test through a special calculation that recognises the return of capital that forms part of every super pension payment. If you put in place a Binding Reversionary Pension nomination now your Centrelink pension may be a little less if your spouse has a longer life expectancy at the original commencement of the pension.

The incoming changes to the Age Pension income test will mean that “new” ABP assets held by retirees will be double-counted when being assessed for the Age Pension, being deemed under the Income Test (little/no assessment now) and counted as an asset for the Asset Test (no change).

The Federal Government’s new legislation is just around the corner so it is important that retirees “have a check-up” with their adviser to make sure they have ticked all the boxes so that they don’t lose out.

Howard Kemp is a senior financial planner at Civic Financial Planning, part of the Findex Group. He was formerly chairman and principal of Civic.

Howard has been a financial planner for more than 26 years with the DipFP and a Certified Financial Planner since 1993.

He has particular expertise in providing advice to public sector employees before and at retirement particularly those who are CSS, PSS and PSSaP members.