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This topic contains specific provisions for assessing income streams. It covers:
For information on joint income streams refer to 4.9.2.50.
A disability benefit paid as a series of regular, ongoing payments by a superannuation fund, whether purchased by the superannuation fund on the person's behalf, by their union, or by their employer, is an income stream for social security purposes. It is not a compensation payment and the income is not subject to the compensation provisions of Part 3.14 of the SSAct. These benefits are also known as salary continuance benefits or income protection benefits. Depending on the contract, benefits may be paid:
The amount of cover is restricted normally up to 75 per cent of the person's monthly income earned from personal exertion by way of a total remuneration package. The income stream payment is treated as a defined benefit income stream. For the assessment of defined benefit income streams under the income and assets test refer to 4.9.2.20 and 4.9.3.20.
Example: Ken has an industrial accident and makes a successful claim on his superannuation fund's group insurance policy. The resulting benefit, paid in relation to his permanent incapacity to work, for the remainder of his life, is:
The presence of any offset clauses in the superannuation fund's group insurance policy does not affect this outcome. The gross income is taken into account and adjustments are not made for offsets applied by the superannuation fund.
Act reference: SSAct section 9(1)-'income stream'
Policy reference: SS Guide 4.9.2.20 Extension of Asset-Test Exemption to pre-20/9/98 Defined Benefit Income Streams, 4.9.3.20 Asset Test Assessment of Asset-Tested Income Streams
Pre-assessment payments are paid to injured workers who have exhausted all paid personal leave and have submitted his or her invalidity retirement request to ComSuper, but are awaiting a decision from ComSuper.
These payments whether paid by way of lump sum, or paid periodically are caught by the definition of compensation.
Act reference: SSAct section 17(2) Compensation
Policy reference: SS Guide 4.13.3.10 Overview of Periodic Compensation Payments
An income stream paid to a trust (e.g. discretionary or testamentary trust) is NOT an income stream for social security purposes. It is assessed under the Trusts and Companies rules (4.12) where the payments from the income stream are assessed as trust income and no income deduction is allowed for the income stream.
Example: John purchased a life expectancy income stream with a term of 17 years. John died 2 years after the commencement of the income stream. He did not specify a reversionary beneficiary, so it was paid to his estate. Through John's will, a testamentary trust was established and this trust continued to receive the payments from the income stream. The income stream payments became the property of the trust and were then paid from the trust to John's surviving partner, Beryl.
For social security purposes, the income received by Beryl is not an income stream for social security purposes. This is because the payments are made as a disbursement from the testamentary trust. As such, the income disbursements from the trust become an asset of the trust and, upon disbursement to Beryl, will be assessed under the Trust and Company rules.
Note: This assessment will not change if the superannuation fund or product provider pays the income stream payments directly to the income support recipient because the trust still retains ownership of the income stream.
Policy reference: SS Guide 4.12 Means Test Treatment of Private Trusts & Private Companies from 01/01/2002
Where an income support recipient was previously receiving income payments from an income stream through an entity (or some other structure) and the ownership structure changes so that the income support recipient now owns the income stream and starts to receive the income payments directly, the income support recipient will be assessed as commencing a new income stream from the date the ownership changed. In effect the income stream will be treated as if there was a commutation into a new income stream from the date of the ownership change. The income stream will be assessed as having a commencement day on the date of the ownership change. The income stream provider will need to advise Centrelink of a new purchase price equal to the present value of the income stream on the new commencement day (4.9.3.10). The relevant number (1.1.R.135) will be determined on the basis of the new commencement day.
Example: On 1 January 2000 the Gambler Family Trust purchased a lifetime annuity from a life office on behalf of Greg when Greg retired at age 65 years. The annuity had a purchase price of $200,000 and paid $13,800 annually. On 1 January 2002 Greg commenced receiving the annual payments of $13,800 directly. This is treated by Centrelink as a commutation to a new income stream, with a commencement day of 1 January 2002. The life office will need to advise Centrelink of the new purchase price of (for example) $180,600. The relevant number would be 14.79. Greg is assessed as receiving gross income of $13,800 less the deduction amount of $12,210.
Note: Where the life office pays the income stream payments directly to the income support recipient but the trust still retains ownership of the income stream, the income payments will be assessed as being income from the trust.
Policy reference: SS Guide 4.9.3.10 General Provisions for Asset-Tested Income Streams
A successor fund, in relation to a transfer of benefits of a member from one superannuation fund to another, means a fund which satisfies the following conditions:
Successor funds are generally used to merge superannuation funds in the accumulation phase, although some of these funds may also be paying income streams.
Where the fund is a successor fund, then the transfer of the right to an income stream continues with the same commencement day, relevant number and deduction amount. This is on the basis that the person in receipt of the income stream has not exercised any right in relation to the income stream at the time of transfer. The original purchase price also remains unchanged.
An abatement occurs when an employee (1.1.E.87) takes additional units of superannuation, but CANNOT pay the full amount due at the time of their retirement. The amount is repaid over a number of years after retirement by annually deducting a lump sum before the superannuation is made available. During the time an abatement is in effect, the abatement amount is NOT income and NOT included in the gross payment for income test purposes.
Example: The New South Wales Railway Superannuation Scheme contains an abatement.
From 1 July 2005, SIS Regulations allow a person who has reached their preservation age to access their superannuation through an income stream without having to retire permanently from the workforce. Access to superannuation benefits may only be allowed as:
These income streams are also known as transition to retirement income streams.
Centrelink and DVA are not required to take any special action with regard to the processing of income streams purchased before retirement by income support recipients. These income streams will be assessed under the same rules and processed in the same way as income streams purchased after retirement.
Consequently, if the income support recipient purchases a transition to retirement account based income stream, it is assessed like a normal account based income stream. For asset assessment, refer to 4.9.3.20 and for income assessment, refer to 4.9.3.30.
If the income support recipient purchases a transition to retirement complying lifetime, life expectancy or market-linked income stream, it is assessed as asset test exempt if purchased prior to 20 September 2007. If purchased on or after 20 September 2007, it will not comply with sections 9A, 9B and 9BA of the SSAct and therefore, will not be asset test exempt. For asset assessment, refer to 4.9.2.25 and for income assessment, refer to 4.9.2.30.
Act reference: SSAct section 8 Income test definitions
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Last reviewed: 1 February 2010
