New pension rules 'snuck in'

by |
SMSF owners have an advantage over other superannuation members if pension legislation which has passed through the House of Representatives commences at the start of 2015. 

The proposed legislation has largely slipped under the radar, Supercorp policy head Mark Ellem told Wealth Professional. 

Changes to the age pension income test were put forward by Labor in April and not included in the swathe of bills the Liberal’s intend to retract.

The change will assess superannuation pensions starting from 1 January 2015 under a less generous rule – the Centrelink Income Test – just the same as non-super pension.

“It’s snuck in under the radar, and it’s something the Liberal government didn’t highlight so it’s obviously something they support,” said Ellem.

“We just wanted to highlight it because it’s a big change. It seemed the change got through the lower house without much fanfare. But this can cause you significant impost, it means less pension.”

Ellem suggests people approaching pension age need to consider whether they start a pension before 1 January 2015, so once they do become of pension age they have a private pension – out of their superannuation – that is more generously assessed for the income test than if it is started post-Jan 2015.

He points out SMSFs have a “considerable advantage” over non-SMSFs.

“Because if you have a pension being provided from a non-SMSF before 1 January 2015, under the current more generous rule, that will be grandfathered and continued after January 2015.

"However, if you no longer like the institution that’s providing your pension and you swap institutions, and that swap happens after January 2015 – then your new pension will be subject to the new less generous rules.”

Whereas an SMSF is not affected as trustees can change the fund’s investment advisor without changing the pension provider, as the provider of the pension remains the SMSF. “So SMSF has the advantage as it means the grandfathering will last longer,” says Ellem.

“If this gets through the senate, there is quite a lead up time before it comes into play, so everyone should consider their position on whether they should commence a pension and for that pension to be forever grandfathered from the new rules.”

The bill containing this change was passed by the House of Representatives on November 20, and will now move to the Senate where, if passed, will become law.
 
  • Jeff Worthington on 12/12/2013 2:59:41 PM

    Under this legislation there is no advantage in commencing an income stream prior to 1/1/15 unless you also qualify for an age or service pension before that date. There are 2 criteria for a pension to be grandfathered - income stream in existance prior to 1/1/15 and in receipt of government income support prior to 1/1/15. The FPA amongst others have made submissions to a Senate committe on this. The greatest effect will be on those with lower amounts of super who are assessed under the incomes test. Another broken promise?

  • Lisa on 12/12/2013 3:04:37 PM

    Agree Jeff - that was my understanding as well - you ahd to be in receipt of Age pension on 1/1/2015 for that to work

  • Lachlan St Clair on 12/12/2013 3:05:31 PM

    This is massive. If this gets up, there are very few reasons why any couple with less than say $500k would use the superannuation system in retirement. No centrelink benefit and no tax benefit but tax payable when money goes to children. Just set it up in a non-super investment. Places industry fund advisers in particular in a very difficult position given their market and fact industry funds do not offer non-super structures.

  • Mark Ellem on 12/12/2013 4:51:00 PM

    Hi Jeff, yes, under the draft Bill to have the pension grandfathered the person must be in receipt of government income support prior to the start date. For those attaining age pension age prior to the start date and being eligible for the age pension, it provides some time to consider their options. However, more changes to superannuation related rules does nothing to provide confidence in a system for people to plan their retirement. So much for no detrimental changes in superannuation. Hopefully the FPA's and other submissions will highlight the shortcomings of this change.

  • Jenni Devlin on 13/12/2013 8:39:55 AM

    Income support under grandfathering can include the disability support pension and theh health care card. The health care card is not assets tested and has a more generous incomes test, so more would qualify on that ground if they apply for the card.

WP forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Name (required)
Comment (required)
By submitting, I agree to the Terms & Conditions