Documentation required for actuarial valuations 108-04110020

An annuity is a periodic payment purchased with a lump sum for a specified period, usually from a Life Office. This period may be a set number of years (term certain annuity) or for life (lifetime annuity). Annuities can be purchased with ordinary or rollover monies.

Private annuities are not assessed under the income stream rules. This is because they do not meet the requirement in the rules for prudential regulation. They are usually family arrangements and are not traded in the market. Private annuities are assessed under the ordinary income and assets tests.

Where a customer purchases an annuity from a source other than a financial institution, for example, from a relative or friend, then it is necessary to establish whether the customer has received adequate financial consideration for the purchase price or whether the deprivation rules apply. In these cases, the capital value of the annuity must be determined.

The AGA determines the capital value by methods of calculation based on assumptions linked to interest rates, mortality tables and economic factors. If adequate financial consideration has not been received, then the difference is treated under the deprivation provisions.

Arrangements made outside the 5 year period for disposition are not required to be valued for adequate financial consideration.

Transactions similar in nature to an annuity, for example, customer transfers property to a child in return for an income stream, are treated in the same manner as annuities purchased from relatives and must be examined to ensure the customer has received adequate financial consideration. The 5 year rule will still apply.

The following information must be included by the CAO in a referral to the AGA:

• contact details (that is, email address and direct phone number) of the requesting officer in case further information is needed
• full name of the customer and Centrelink customer reference number (CRN)
• date of birth of the customer
• valuation date required (date of the agreement will be used unless otherwise stated)
• purpose of the valuation, for example, deprivation following sale
• basic terms of the agreement, for example, instalment amounts and due dates
• treatment of annuity on death of purchaser
• age of annuitant
• payment rate
• indexation rate (if any)
• ability to commute the annuity (if any)
• details of any other relevant factors

Documents required for referral to the AGA for assessment of a life interest are a copy of the sale agreement or private annuity agreement, if available. If not available, provide the basic terms of the agreement, for example, instalment amounts, due dates, treatment of the annuity on death of annuitant.

Note: see Resources Useful contact information - Australian Government Actuary for contact details.

A life interest is generally an exempt asset, however a life interest created by the customer, the customer's partner or on the death of a customer's partner is an asset which must be valued for Centrelink assessment purposes (unless the asset which is the subject of the life interest is an exempt asset such as the principal residence). Life interests in exempt assets are also exempt assets and do not need valuation unless surrendered. Life interests that are assessable as assets must be actuarially valued if it is likely the asset value will affect the customer's rate of pension or allowance.

The value of a life interest is determined by the AGA. The AGA, in valuing the life interest, will generally take into consideration the terms attached to the life interest, the age and gender of the customer granted the life interest, and the type of asset in which the customer has the life interest. To determine if an AGA valuation is required, calculate the approximate asset value of the life interest.

If a customer surrenders a life interest the value of the income and/or asset must be looked at in terms of disposition. An actuarial valuation may be required to ascertain the amount of deprivation to be maintained. The 5 year rule in regard to disposition applies.

Reversionary, remainder or contingent interest in property and or investments (creation of life interest).

The value of a reversionary, remainder or contingent interest is an exempt asset except where the interest was created by the customer or partner.

A reversionary interest occurs when a titleholder of an asset grants another party a life interest or interest in the asset for a specified time including the beneficial use of the asset for life or the specified time. The use of the asset reverts back to the titleholder on expiration of the other party's interest.

A remainder interest is created when a person grants a life interest in an asset to one party but gives title to the asset to another party. For example, the first party has the use of the property for life or a specified term, and the second party has the remainder interest on termination of the first party's interest.

A contingent interest is one which depends on or is contingent to a particular occurrence which may or may not occur.

Reversionary, remainder or contingent interests created by a customer or partner must be actuarially valued, and the actuarial valuation maintained as an asset. The deprivation rules must be considered in cases falling into the 5 year provision.

The following information must be included by the CAO in a referral to the AGA:

• full name of the customer and Centrelink customer reference number (CRN)
• date of birth of the customer
• whether the customer lives in an aged care facility
• valuation date/s required (date of the letter will be used unless otherwise stated)
• purpose of the valuation, for example, income support payment assessment, deprivation following surrender

The following documents and supporting information are required for referral to the AGA for assessment of a life interest:

• details of all assets the customer has a life interest or remainder interest in as at the valuation date/s. See Resources page for details of assets and required documentation
• will (if the life interest was initially inherited by the customer)
• deed of arrangement
• income tax return
• in the case of remainder interest, also provide the date of birth of the person who has a life interest and whether they live in an aged care facility
• statement regarding any other relevant factors

Note: customers are not required to provide medical or other health details and if provided will be attached to the customer's file with other documentation.

For cases not specified above and where it is considered an actuarial valuation may be needed, Service Officers must contact a CAO before referring the case.

For all cases, it is the responsibility of the Service Officer to collect all information and documents required before referral to the CAO.

See Australian Government Actuary for contact details.