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9.6.10 Deprivation Related to Private Annuities
Assessing disposal of private annuities
Deprivation provisions apply to the disposal of a private annuity if a pensioner
- disposes of the annuity, and
- does not receive adequate financial consideration.
Assessing the amount of disposition
The amount of disposition for a disposed of private annuity is the value at the time of:
- commutation, or
This will generally require an actuarial valuation. If an actuarial valuation was done in the last 24 months, the value of the annuity is:
- this valuation, minus
- any income payments made since valuation.
Example of assessing the amount of disposition
A pensioner has a private annuity valued less than 2 years ago at $100,000. They receive twelve $1,000 payments in a year. The pensioner surrenders the annuity after receiving the sixth payment for that year and does not receive adequate financial consideration. The value of the deprived asset is $100,000 - $6,000 = $94,000.
Income deprivation provisions generally do not apply to disposed of private annuities. Asset deprivation provisions do apply.
If a pensioner forgoes an annuity payment, the value of the payment is assessed as being received. Therefore, income deprivation provisions apply to all forgone payments.
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.
A deprived asset is an asset:
- that has been disposed of for less than its value (that is, adequate financial consideration has not been received), and
- the value of which is included in the value of the person's assets for the purpose of determining that person's rate of pension.