Means Test Assessment of Asset-tested Income Streams - Lifetime

The following explains how asset-tested lifetime income streams are assessed under the income test and the assets test, and explains the additional rules pertaining to high surrender values or death benefits.

Note: grandfathering provisions are applied to lifetime income streams purchased before 1 July 2019, which are assessed as asset-tested income streams (long term) and could be asset-test exempt if purchased before 20 September 2007.

Income test assessment of asset-tested income stream (lifetime)

Before the assessment day (see Glossary) in relation to the income stream:

• if the income stream was purchased with superannuation monies – no income is assessed
• if the income stream was purchased with non-superannuation monies – the income stream is a managed investment and deemed under the deeming provisions (9.5).

On or after the assessment day in relation to the income stream, 60 per cent of the annual payments from an asset-tested income stream (lifetime) are assessed as income.

For deferred income streams (i.e. income streams that do not make payments for a set period of time after purchase), income is only assessed when the income stream is making payments (i.e. after the deferral period).

Example: Tom receives an annual payment of $5,000 from his lifetime income stream. Upon reaching his assessment day,  60 per cent ($3,000) is assessable income. As his payments increase due to indexation, 60 per cent of the payments will continue to be assessed under the income test for the duration of the lifetime income stream.

VEA: section 46YB Income – asset-tested income stream (lifetime),
section 52BAA Value of asset-tested income streams (lifetime) that are managed investments,
section 52BAB Value of asset-tested income streams (lifetime) that are not managed investments

Assets test assessment of asset-tested income stream (lifetime)

Before the assessment day (see Glossary) in relation to the income stream:

• if the income stream was purchased with superannuation monies – no asset value is assessed. This is consistent with the treatment of other superannuation investments held by a person prior to retirement.
• if the income stream was purchased with non-superannuation monies – the income stream is a managed investment and the full purchase amount (see Glossary) is assessed. This is consistent with the treatment of financial investments held by a person outside of superannuation prior to retirement.

On or after the assessment day in relation to the income stream, up to and including the threshold day (see Glossary) for the income stream, 60 per cent of the purchase amount of the asset-tested income stream (lifetime) is assessed, provided the income stream does not have high surrender values or death benefits (see below).

After the person’s threshold day, 30 per cent of the purchase amount will be assessed for the remaining duration of the lifetime income stream, provided the income stream does not have high surrender values or death benefits (see below).

If the income stream has a surrender value or death benefit above the limits outlined below in any current or future year, then the assessable asset value is the higher of:

• the standard 60 per cent / 30 per cent assessment outlined above;
• the highest surrender value above the limits outlined below on the current and any future day; and
• the highest death benefit above the limits outlined below on the current and any future day.

Note: deferred income streams are assessed under the assets test from the assessment day. This can include the income stream being assessed under the assets test in the deferral period if payments commence after the assessment day.

Example: Tiffany purchases a lifetime income stream at age 70 (birthday 20 March 1949) on 1 July 2019.

• The assessment day for the income stream is 1 July 2019.
• The threshold day for the income stream is the day before Tiffany’s 84^th birthday, which is 19 March 2033.
• The purchase amount for the income stream is $200,000.
• The income stream has surrender values and death benefits beneath the limits.

Initially, 60 per cent of the purchase amount ($120,000) is assessed under the assets test. 60 per cent continues to be assessed until 19 March 2033. From 20 March 2033, 30 per cent ($60,000) of the purchase price is assessed as an asset under the assets test. 30 per cent is then assessed for the rest of the duration of Tiffany’s lifetime income stream.

Example: Tamara purchases a deferred lifetime income stream at age 83 on 1 July 2019.

• The assessment day for the income stream is 1 July 2019.
• The threshold day for the income stream is the last day of a five year period starting on the assessment day, which is 30 June 2024.
• The purchase amount for the income stream is $200,000.
• The income stream has a deferral period of 2 years.
• The income stream has surrender values and death benefits beneath the limits.

Initially, 60 per cent of the purchase amount ($120,000) is assessed under the assets test. 60 per cent continues to be assessed until 30 June 2024. From 1 July 2024, 30 per cent ($60,000) of the purchase price is assessed as an asset under the assets test. 30 per cent is then assessed for the rest of the duration of Tamara’s lifetime income stream. The deferral period for Tamara’s lifetime income stream does not impact her assets test assessment.

VEA: section 52BA Value of asset-tested income streams (lifetime) that are managed investments,
section 52BAB Value of asset-tested income streams (lifetime) that are not managed investments. 
To determine Threshold Day, see Veterans’ Entitlements (Number of expected years) Instrument 2019.

Limits for high surrender values or death benefits

The assets test rules for asset-tested income streams (lifetime) have additional provisions for products with surrender values or death benefits above the limits imposed by the Capital Access Schedule in the Superannuation Industry (Supervision) Regulations 1994.

The limits are outlined in a graph in the Explanatory Statement of the Veterans' Entitlements (Value of Asset-tested Income Streams (Lifetime)) Determination 2019.

On a given day (the access day), the limit for surrender values is:

• For a day during the 14 day period that begins on the assessment day for the income stream – the access amount.
• For any other day, the greater of nil or the amount worked out using the following formula:

     [(access amount  ÷ life expectancy period for the income stream) ×

      remaining life expectancy],

                 less any commuted amounts.

On a given day (the access day), the limit for death benefits is:

• For a day during the first half of the life expectancy period for the income stream – the access amount.
• For any other day, the greater of nil or the amount worked out using the following formula:

     [(access amount  ÷ life expectancy period for the income stream) ×
      remaining life expectancy],

                 less any commuted amounts.

Where:

• access amount – the maximum amount that would have been payable for the income stream, as determined by the contract or governing rules for the income stream, if the income stream had been commuted on the assessment day for the income stream, plus any installments paid for the income stream after the assessment day and before the access day.
• life expectancy period – the number of days:
• using the Life Tables (10.5.7) to calculate the number of days, at the assessment day, in the life expectancy of:
• the person eligible to receive the income stream, or
• for a joint income stream—the eldest of those eligible to receive the income stream, and
• rounding that number of days down to the nearest whole number of years, and
• converting those years to a number of days, assuming 365 days in a year.
• remaining life expectancy means the number of days remaining in the life expectancy period for the income stream after subtracting the number of days in the period:
  • starting on the assessment day for the income stream, and
  • ending on the access day.

Example: Tamotsu purchases an asset-tested income stream (lifetime) at age 70 (birthday 20 September 1949) on 1 January 2020.

• The assessment day for the income stream is 1 January 2020,
• The threshold day for the income stream is the day before Tamotsu’s 84^th birthday, which is 19 September 2033.
• Tamotsu’s life expectancy period is 15 years (5,475 days).
• The purchase amount for the income stream is $200,000.
• The access amount for the income stream is $200,000.
• Under the terms of the contract, the income stream has:
• no surrender value until Tamotsu turns 80;
• a surrender value of $200,000 while Tamotsu is 80; and
• no surrender value again from when Tamotsu turns 81.
• The income stream has no death benefit.
• Tamotsu has made no commutations from the income stream.

Under the terms of the contract, for the year when Tamotsu is 80, the income stream has a surrender value. The surrender value limit when Tamotsu is 80 is:

($200,000 ÷ 5,475) × 1,924 = $70,283.11

as there are 1,924 days remaining in the life expectancy period.

The surrender value of Tamotsu’s income stream is $200,000, which is greater than the surrender value limit. For all days before Tamotsu turns 81, the standard assets test assessment is compared against the $200,000 surrender value. The higher value is assessed as an asset.

The assessable value of Tamotsu’s income stream is as follows:

• From the threshold day until the day before Tamotsu turns 81 (i.e., from 1 January 2020 to 19 September 2029), the income stream has an assessable value of $200,000 (the full future surrender value).
• From 20 September 2029 to the threshold day (19 September 2033), the income stream has an assessable value of $120,000 (60 per cent of $200,000).
• From 20 September 2033 onwards, the income stream has an assessable value of $60,000 (30 per cent of $200,000).

Example: Tegan purchases an asset-tested income stream (lifetime) at age 70 (birthday 1 November 1949) on 1 January 2020.

• The assessment day for the income stream is 1 January 2020.
• The threshold day for the income stream is the day before Tegan’s 84^th birthday, which is 30 October 2033.
• Tegan’s life expectancy period is 17 years (6,205 days).
• The purchase amount for the income stream is $200,000.
• The access amount for the income stream is $200,000.
• The income stream has no surrender value.
• The income stream has a death benefit of $40,000 for the duration of the income stream. 
• Tegan has made no commutations from the income stream.

Tegan’s income stream has a consistent death benefit of $40,000. This is less than 60 per cent of the purchase amount ($120,000), and will therefore not affect her assessable asset value prior to the threshold day for the income stream.

After the threshold day, the death benefit limit for the income stream is:

($200,000 ÷ 6,205) × 1,153 = $37,163.58

As the death benefit for Tegan’s income stream is $40,000, it is greater than the death benefit limit after the threshold day.

The assessable value of Tegan’s income stream is therefore:

• 60 per cent of $200,000 ($120,000) until Tegan reaches their threshold day (30 October 2033).
• $40,000 (the full current and future death benefit amount) from 1 November 2033 onwards.

Legislation: VEA section 52BAB, Veterans’ Entitlements (Value of asset-tested income streams (lifetime)) Determination 2019

Hybrid asset-tested income streams

Some products combine account-based income streams with lifetime income streams. In these cases, the product will be assessed as two separate income streams. The account-based component will be assessed as an asset-tested income stream (long term), and the lifetime component will be assessed as an asset-tested income stream (lifetime).

Types of hybrid products include those below.

• Guaranteed minimum income for life products, which are account-based income streams with a lifetime component that makes regular payments to an individual once the account balance of the account-based income stream is reduced below a threshold specified in the product’s contract.
  • For these products, the lifetime component is considered to have been acquired at the point when the person begins to contribute towards the provision of the guarantee (e.g. through specific fees). Payments made to supplement the account-based income stream component are assessed under the asset-tested income stream (lifetime) arrangements. The lifetime component has its own purchase amount, which is assessed separately from the account balance of the account-based income stream component.
• Lifetime income streams packaged with an account based income stream.
  • For these products, payments made by the lifetime income stream are assessed under the asset-tested income stream (lifetime) arrangements. The lifetime component has its own purchase amount, which is assessed separately from the account balance of the account-based income stream component.

VEA: Veterans’ Entitlements (Kind, Extent and Purchase Amount for Asset-tested Income Streams (Lifetime)) Determination 2019.