Adding or updating an account-based income stream 108-05060010

An investment account is set up in the superannuation fund when a person purchases an account-based income stream:

• Additional funds cannot be added to the account
• The balance will increase as investment earnings are added
• The customer can access their money through regular payments (drawn down) or lump sum withdrawals (commutations)
• The income stream continues whilst there is a positive account balance

Customers can select the amount of income (above a minimum limit) they wish to withdraw each financial year. The Superannuation (Industry) Supervision Regulations, known as the SIS Regs, sets the minimum limit. There is no maximum limit unless it is a transition to retirement pension.

A Percentage Factor (PF) is used to work out the minimum annual payment limit each year. The account balance on 1 July each year is multiplied by the appropriate PF and the result is rounded to the nearest $10. New limits apply each 1 July based on the person's age and the balance in their account.

From 1 January 2009 to 30 June 2011, the minimum drawdown limits were reduced by 50% and from 1 July 2011 to 30 June 2013 by 25%. From 1 July 2013, the original minimum drawdown limits apply.

As part of the government response to COVID-19 (novel coronavirus), the minimum drawdown limits for account-based income streams under the Superannuation Industry (Supervision) Regulations 1994 have been reduced by 50% for 2019/2020, 2020/2021, 2021/2022 and 2022/2023 financial years. Customers are able to reduce their gross annual income amount, subject to the reduced minimum based on the existing 1 July account balance.

From 1 January 2015, account-based income streams were included in the deeming provisions. A '9' identifies them in the Product Category field on the Income Stream Details (SUPV) screen (Category 9 Asset Tested (Long Term) Deemed).

Deeming provisions apply to account-based income streams meeting the following:

• Purchased from 1 January 2015, or
• Purchased before 1 January 2015 if the account-based income stream is owned by:
• customers who start receiving an income support payment on or after 1 January 2015
• customers who did not receive a pension or allowance payment for at least one fortnight after 31 December 2014
• non-customer partners
• Low Income Health Care Card (LIC) holders
• customers who were granted a Commonwealth Seniors Health Card (CSHC) on or after 1 January 2015
• a CSHC card holder's partner who is aged 60 or more

Account-based income streams purchased before 1 January 2015 are grandfathered and are assessed under the rules that were in place before that date.

From 20 September 2018, deeming provisions apply to account-based income streams held by customers receiving Carer Allowance (CA) or by their partner, if they are 60 years of age or older. See Carer Allowance (CA) income test - determining reference tax year and assessable income components for more information.

Account-based income streams do not meet the required characteristics for asset-test exemption in sections 9A, 9B or 9BA of the Social Security Act 1991. This means they are never asset-test exempt (ATE). They are assessed as asset-tested income streams (long term). The current account balance is a financial asset.

The income stream is subject to deeming. The current account balance is added to the combined value of a person's other financial assets to calculate the deemed income. The deemed income applies regardless of the gross income amount being taken from the product.

Grandfathering may apply.

A person who has reached preservation age can access their superannuation through an income stream without having to retire. This can be done through a non-commutable account-based income stream, known as a transition to retirement income stream (TRIS). TRIS are assessed like normal account-based income streams.

There is a minimum income limit for the financial year. A maximum limit of 10% applies to TRIS pensions.

From 1 July 2017, the government removed the tax exempt status of earnings for a TRIS where the customer has not retired from the workforce.

The person who purchased an income stream can nominate a person to receive the income after their death, for example their spouse or partner. This person is the reversionary beneficiary.

If the income stream automatically reverts (binding reversion) to the nominated reversionary beneficiary upon the death of the primary beneficiary, it will continue to have the original income stream:

• same start date
• purchase price
• relevant number

If the income stream was grandfathered, it can retain that status in some circumstances.

If there is no binding reversionary arrangement, reversion can occur at the sole discretion of the trustee or because of an election made by the reversionary beneficiary after the death of the primary beneficiary. In this case, a new account-based income stream is created. The new account-based income stream will have a new purchase date, new purchase price, new relevant number and new gross annual payment.

There may be a gap between the death of the original beneficiary and the date the reversionary beneficiary starts to receive payments. A lump sum arrears payment is made to the reversionary beneficiary to cover the gap. The lump sum is assessed as income from an income stream for the period to which it relates. This may result in a debt if the person has been receiving an income support payment.

Waiver provisions came into effect from 9 May 2018:

• if the lump sum arrears results in a debt during the bereavement period for the surviving spouse, and certain conditions are met
• only debts within the 14 week bereavement period can be waived under these rules

The 9 May rules are not retrospective. Any of these debts occurring before 9 May 2018 cannot be waived using these rules.

See the References page for a link to the legislation.

Grandfathering applies to some reversionary income streams.

Note: within Process Direct the Grandfathering Override field remains restricted to APS5 or above. Customer First will allow the coding by APS3s.

A partial commutation changes the asset value and the deduction amount. For an account-based income stream, the asset value after a commutation is the new account balance.

If an income stream is fully commuted, it means the income stream must be closed on the customer's record. The customer must:

• supply evidence to support the full commutation, and
• advise what they have done with the money, for example, cash or funds transferred to another investment or income stream

The Process page has information on adding or updating an income stream if the customer is notifying a commutation.

A partial commutation does not change a grandfathered status.

Part VIIIB of the Family Law Act 1975 allows splitting of an income stream following a divorce property settlement in accordance with a superannuation agreement or a court order. The income stream can be commuted partially or fully to give effect to the split. This may result in a new income stream starting for the income stream owner's ex-partner.

If the income stream was purchased before 1 January 2015, grandfathering rules may apply.

A Successor Fund Transfer (SFT) is where all members of a superannuation fund move to another superannuation fund. This includes members who have an income stream. The transfer can apply to all types of income streams, however it typically applies to account-based income streams.

For an income stream recipient, there can be no change to the terms and conditions of the income stream product. The income stream will continue to have the same purchase date, purchase price, relevant number and total commutations since purchase date as the original income stream. The only change would be to the provider name, Australian Business Number (ABN) and possibly the product reference number.

If the original income stream was grandfathered under the pre-1 January 2015 rules, and the customer continues to be receiving an income support payment when the income stream is transferred, the income stream will retain its grandfathered status.

Additional information regarding SFTs can be found on the Successor Fund and Intra Fund Transfers page within the Financial Industry and Network Support (FINS) Bulletin.

If the assets backing the income stream have been frozen, the income stream will continue to be assessed. This is because although the assets are frozen, they still exist and have an asset value. If the relevant minimum income amount is not paid from the income stream for the financial year:

• it will still be assessed as having paid income at the relevant minimum amount for the financial year, or
• the deemed income amount depending on the assessment rules for that particular product

This is because under superannuation rules, an existing income stream must pay at least the relevant minimum payment for the financial year.

If the income stream cannot make at least one payment during a financial year, the income stream stops to be assessed as an income stream and will be assessed as a superannuation investment (managed investment) from the earlier of:

• the date when the customer is informed by their provider that no payment will be made from the income stream during the financial year, or
• 30 June for the financial year if no payment has been received

Before 1 January 2015, the income from account-based income streams was assessed as follows:

• Assessed income = gross annual income - deduction amount

A grandfathered income stream will continue to be assessed under the pre-1 January 2015 rules for income support payment customers if the recipient (including Department of Veterans' Affairs (DVA) income support recipients):

• was current at 31 December 2014, and
• remains in continuous receipt of an income support payment since that date. The customer must receive at least $0.01 every fortnight on their regular payday. The system will end date the grandfathered status automatically when the benefit status changes from CUR to SUS or CAN or CZR (except CZR-DFISA and CZR-direct deduction to NZP)

Income support payment customers with a partner receiving an income support payment from Department of Veterans' Affairs (DVA) since 31 December 2014, who have an account-based income stream with a purchase date before 1 January 2015, may also be grandfathered. DVA payments include the following: AGE - Age Pension, ISS - Income Support Supplement and SER - Service Pension.

Grandfathered status for an account-based income stream applies to that product only. Grandfathered status will be lost if the account-based income stream is fully commuted and directly transferred to another account-based income stream.

A '2' can identify the grandfathered accounts-based income streams in the Product Category field on the SUPV screen (Category 2 Assets Tested (Long Term)). These products will also have a '2015 Saved Date' with a grandfathering reason. If grandfathering stops, an end date will display on the SUPV screen and the income stream will convert to a category 9 income stream (which means it is assessed under the deeming rules).

Note: the product category may display as '2' even though the product is actually being deemed. This happens if the Event Date field on the Income Stream Details (SUPV) screen is before 1 January 2015. Once an update is made on or after 1 January 2015, the correct category will display.

Reversionary beneficiary

An income stream that transfers to a reversionary beneficiary will retain its grandfathered status for an income support payment if:

• it was grandfathered under the pre-1 January 2015 rules, and
• the reversionary beneficiary is in receipt of an income support payment at the time the income stream reverts

An account-based income stream will retain its grandfathered status for Commonwealth Seniors Health Card (CSHC) if all the following conditions are met:

• It was grandfathered for the original owner under the CSHC pre-1 January 2015 rules, and
• The account-based income stream reverts automatically to the spouse on the original owner's death
• The reversionary beneficiary (spouse) is the holder of a CSHC when they commence receiving the account-based income stream payments and continues to remain the holder of a CSHC

There are no changes to the original account-based income stream, that is, the purchase date, purchase price and relevant number, all remain the same. The system will apply grandfathered status if the reversionary beneficiary has been in receipt of an income support payment since 31 December 2014. In other cases, an APS3 or above must intervene to restore the grandfathered status on the reversionary beneficiary record.

Note: within Process Direct the Grandfathering Override field remains restricted to APS5 or above, Customer First will allow the coding by APS3s.

Carer Allowance

Deemed income will be calculated on the current balance of account-based income streams from 20 September 2018 under the Carer Allowance income test. There are no grandfathering provisions.

Commonwealth Seniors Health Card (CSHC) and Low Income Health Care Card (LIC)

Grandfathering applies to customers who held a CSHC on 31 December 2014, until they lose eligibility. Grandfathering will cease if the CSHC holder loses entitlement to the CSHC for any reason, such as, having their card cancelled due to a temporary absence from Australia for more than 19 weeks. The account-based income stream will only retain its grandfathered status if their CSHC is subsequently restored and backdated, that is card entitlement recommences from date of cancellation.

Account-based income streams purchased by CSHC holders on or after 1 January 2015 will not be grandfathered. Account-based income streams held by a CSHC holder's partner who is 60 years of age or more and not a CSHC holder will not be grandfathered regardless of when they purchased the product.

Deeming will apply for the assessment of aged care fees for CSHC holders even if they entered care before 1 January 2015. There are no grandfathering provisions.

For LIC, deemed income will be calculated from the current balance of account-based income streams from 1 January 2015. There are no grandfathering provisions.

Family law payment split

If the original income stream was grandfathered, the ex-partner's new income stream will retain its grandfathered status if:

• at the time of the split, the ex-partner is receiving an income support payment, and
• continues to remain on income support payment from the date of the split

If the original account-based income stream was grandfathered, the ex-partners new account based income stream will retain its grandfathering status if:

• at the time of the family law split, the ex-partner held a CSHC, and
• continues to remain the holder of a CSHC from the date of the split

The Department of Social Services (DSS) manages all means test assessments of 'split' income. The Service Officer must forward a copy of the supporting documents to the Level 2 Policy Helpdesk (FINS Helpdesk).

The customer can invest proceeds from the sale of the principal home in an account-based income stream. If the customer intends to use some or all of the purchased income stream to buy their new home, See Sale of principal home.

Account-based income streams are account-based and reviewed in August and February each year. See Income stream reviews.

A system fix was released in September 2020 for account-based income stream products, where the product category was incorrectly changed on the customer's record. Some grandfathered (category 2) account-based products were being assessed as deemed income stream products (category 9) and vice-versa.

To make sure the customer is not incorrectly assessed, investigation of the income stream coding on the record is required to determine if the product category is correct. Remediation action is required to resolve any incorrect assessments.

Note: due to Process Direct limitations, all remediation action must be completed in Customer First.

Requests for information to update income streams owned by a non-current partner are sent to the customer.

Where the customer or partner is unable or unwilling to provide information due to FDV (Family and Domestic Violence), escalate to Automation of Income Stream Reviews (AISR) support. AISR support will request the information directly from the provider.