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Assessing Private Annuities

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Assessment of private annuities

Private annuities do not satisfy the definition of an income stream as they do not meet the requirements for prudential regulation. Private annuities are an assessable asset. Each private annuity is a unique contract that must be assessed on its particular merits and an actuarial value is required in all cases.   

Actuarial value required for private annuity

An actuarial valuation of a person's private annuity is required to determine:

  • the assessable asset value; and
  • whether or not the person received adequate financial consideration for the purchase price, and
  • whether or not the deprivation provision apply.

Actuarial valuations are required because private annuities are usually family arrangements which are not determined by financial markets.

Initial actuarial valuation required

An initial actuarial valuation of a person's private annuity is required when the:

  • annuity is first established, or
  • an income support pension is claimed.
Additional actuarial valuations required

Additional actuarial valuations of a person's private annuity are required when the:

  • number of annuitants (those receiving payments) changes,
  • terms and conditions of the annuity change,
  • amount paid by the annuity changes, or
  • annuity is wholly or partly commuted.
Private annuity - obtaining an actuarial value

The Australian Government Actuary can supply an actuarial value. The Actuary must be supplied with all the relevant details of the annuity including:

  • the purchase price,
  • the commencement date,
  • the term,
  • the payment rate,
  • the indexation rate (if any),
  • the date of birth of each annuitant,
  • the ability to commute the annuity (if any), and
  • a copy of the contract.
Additional requirements when obtaining an actuarial value

The following table shows additional information requirements.    

If one of the parties is a...

also provide...

Trust

a copy of the trust deed.

Company

  • the Articles of Association,
  • the company memorandum, and
  • the most recent company accounts.

Partnership

a copy of the partnership agreement and accounts.

Reassessing the value of the annuity

The assets value of the private annuity should be re-assessed on each anniversary of the initial payment. For DVA purposes the reduction in the annuity's value is made in arrears by the amount of the annual payments.

Private annuity payments forgone

If a person forgoes a payment, the value of the annuity is still reduced. Income deprivation provisions may also apply.    

Annuity surrendered

Generally when a person disposes of an income producing asset without adequate consideration, the assets value is maintained and deemed. It would be 'double-dipping' to also assess the forgone income as income deprivation. Therefore assets deprivation provisions only are applied if a person:

  • surrenders their interest in a private annuity, or
  • otherwise disposes of their rights under the contract and does not receive adequate consideration.


A private annuity is a legally binding contract between two parties where one party provides an income in exchange for payment or valuable consideration. An example of this is where a person agrees to “sell” a property holding .As payment for receipt of the property the purchaser agrees to pay the person individual annuities which usually have a total stated purchase price equivalent to the value of the transferred property.

According to section 5J(1) of the VEA, an income stream includes:

  • an income stream arising under arrangements that are regulated by the Superannuation Industry (Supervision) Act 1993; or
  • an income stream arising under a public sector scheme (within the meaning of that Act); or
  • an income stream arising under a retirement savings account; or
  • an income stream provided by a life insurance business (within the meaning of the Life Insurance Act 1995); or
  • an income stream provided by a friendly society (within the meaning of the Income Tax Assessment Act 1996); or
  • an income stream designated in writing by the Commission for the purposes of this definition, having regard to the guidelines determined under subsection 5J(1F) of the VEA;
  • but does not include any of the following:
  • available money;
  • deposit money;
  • a managed investment;
  • a listed security;
  • a loan that has not been repaid in full;
  • an unlisted public security; or
  • gold, silver or platinum bullion.

 

 

A private annuity is a legally binding contract between two parties where one party provides an income in exchange for payment or valuable consideration. An example of this is where a person agrees to “sell” a property holding .As payment for receipt of the property the purchaser agrees to pay the person individual annuities which usually have a total stated purchase price equivalent to the value of the transferred property.

An asset means any property, including property outside Australia.

For adequate financial consideration to be received when disposing of an asset, a person must receive value in the form of money or assets. Adequate financial consideration can be accepted when the amounts received reasonably equate to the market value of the asset. It may be necessary to obtain a valuation from a property valuation service provider.

When disposing of income, in order for adequate financial consideration to be received, the person must receive money, goods or services which approximate in value to the rate of disposed income. If a person disposes of an income producing asset and receives adequate financial consideration in money or money's worth for the asset, then it can be accepted that they have received adequate financial consideration for the disposal of both the income and the asset.