What is an income stream?
Section 5J
An income stream is a series of regular payments, made for life or for a fixed term, which are purchased with a capital sum or made directly from accumulated superannuation contributions. An income stream can only be paid by one of the following entities:
- an entity regulated under the Superannuation Industry (Supervision) Act 1993
- a public sector superannuation scheme
- a retirement savings account under the Retirement Savings Account Act 1997
- a life company registered under the Life Insurance Act 1995
- a structure designated in writing by the Commission, or
- a Family Law Affected (FLA) income stream.
Investments referred to as income streams may be known by the following names:
- superannuation pensions, including defined benefit income streams;
- account-based pensions or transition to retirement pensions;
- market-linked pensions or annuities;
- allocated pensions;
- immediate annuities.
Types of income streams
Income streams are classified into the following assessment categories, each of which are assessed under different rules:
- asset-test exempt income streams,
- asset-tested income stream (long term),
- asset-tested income streams (long term deemed),
- asset-tested income streams (short term) and
- asset-tested income streams (lifetime).
Asset-test exempt income stream characteristics
An income stream can only be asset-test exempt if it is a defined benefit income stream, or meets all of the following criteria:
- is purchased before 20 September 2007,
- is payable for a specified term dependent on the type of income stream,
- meets criteria dependent on the type of income stream regarding how payments under the income stream are calculated,
- commences on the day it is purchased or acquired,
- converts the purchase price wholly into income,
- has no residual capital value,
- is non-commutable except in limited circumstances,
- has limited reversionary benefits,
- cannot be used as security for borrowing, and
- if the income stream is a lifetime or life expectancy income stream paid from a self managed superannuation fund or a small APRA fund, has a current actuarial certificate in force.
Asset-tested income stream characteristics
Asset-tested income streams are income streams:
- purchased before 20 September 2007 which do not meet all the characteristics of an asset-test exempt income stream, or
- purchased on or after 20 September 2007
and are either:
- long term, where:
- the specified term of the contract is:
- more than five years, or
- five years or less, provided the term is equal to or greater than the owner's life expectancy, or
- the income stream pays for the life of the owner, and
- it was purchased before 1 July 2019, or
- the specified term of the contract is:
- short term, where:
- the term is five years or less, and
- it does not have the characteristics of an asset-test exempt income stream, an asset-tested income stream (long term) or (lifetime), or
- lifetime, where:
- it was purchased on or after 1 July 2019,
- once regular payments commence, the payments continue for the rest of the owner's life,
- the amount paid are based on the age, life expectancy or other factors relevant to the mortality of the owner, and
- it does not have the characteristics of an asset-test exempt income stream or a defined benefits scheme.
Defined benefit income streams
A defined benefit income stream is an income stream paid from a defined benefit superannuation fund (eg PSS). Defined benefit income streams cannot be purchased from retail providers. The income stream must meet the definition of a 'pension' and the person's interest in the income stream must be a 'defined benefit interest' under the Superannuation Industry (Supervision) Regulations 1994.
Hybrid 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 income stream 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).
Impact of splits under the Family Law Act 1975
Income streams may be split as a part of a divorce settlement under the Family Law Act 1975. This can affect how the income stream is assessed.
What an income stream is not
An income stream is not:
- a private arrangement with a person or entity that cannot provide an income stream,
- a loan repayment arrangement,
- a foreign pension provided through the national social security system of an overseas country, More →More → (go back)
Income from Overseas Pensions
10.1.5/Income from Foreign Pensions
Assessment of Comparable Foreign Pension Payments
- an overseas annuity, or More →More → (go back)
Income from Overseas Annuities
10.1.7/Income from Overseas Annuities
Assessment of Overseas Annuities
10.2.4/Assessing Overseas Annuities
- a financial asset as defined in the VEA for the purposes of the deeming provisions except for certain asset-tested income streams.
Exemptions from income stream provisions
Certain people who would be financially significantly disadvantaged by the income stream provisions introduced from 20 September 1998 may qualify for an exemption from the income stream provisions.
Gaining an exemption from the income stream provisions
10.5.3/Exemptions from the Income Stream Provisions
Assessment of income streams
Income streams are assessed according to the term and characteristics of the income stream contract or governing rules. The commencement date of the income stream and whether the owner has been in continuous receipt of an income support payment may also be relevant.
Assessment of the different categories of income streams under the income and assets tests
Life expectancy tables
Life expectancy tables are used to determine the relevant number for income streams. The commencement day of the income stream determines which life expectancy table to use.