Assessing Private Annuities

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.    

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.