Adding or updating a market-linked income stream 108-05060020

An MLI also known as a Term Allocated Pension (TAP). Although TAP sounds like an account based pension (also known as an allocated income stream), this product is not an allocated pension or an account-based income stream. Nor is it a life expectancy income stream.

This product became available on 20 September 2004. An MLI can only be purchased with superannuation money. An existing asset-test exempt MLI can be fully commuted and directly transferred (rollover) to a new MLI which complies with section 9BA. MLIs purchased on or after 20 September 2007 do not have any asset test exemption.

When a person purchases an MLI, an investment account is set up within the superannuation fund. The investment account balance will increase as investment earnings are added to the account and will decrease when regular income payments are taken.

MLIs are like account-based income streams in that they are account-based products where the value of the account balance moves up or down in line with the value of the underlying assets.

The main difference between an MLI and an account-based income stream is that an MLI has a specified end date. They are also like life expectancy income streams with payments being paid for a fixed term, can receive a 50% asset-test exemption and are non-commutable.

The income stream is paid over a fixed term. The customer can select the term within certain limits. The customer needs to draw a certain proportion of the account balance (as at 1 July) as income each year.

The proportion is determined in accordance with a schedule of payment factors specified in the Superannuation (Industry) Supervision Regulations otherwise known as the SIS Regs. The account balance is exhausted at the point the customer reaches life expectancy (rounded up to the next whole year). The income stream may stop earlier if the funds run out before the end date due to poor investment returns.

In the final year of the MLI income stream, the customer can elect to have it expire on the actual expiry date based on the purchase date and the term or relevant number or the closest 30 June. Depending on the expiry date reported by the customer or their provider, the product should be manually expired on the actual expiry date or on 30 June.

The annual income payment is calculated by:

• divide the 1 July account balance by the payment factor
• round to the nearest $10

The investor may choose an annual payment between 90-110% of the calculated income amount.

As part of the Government response to COVID-19 (novel coronavirus) the minimum drawdown for market-linked 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. The annual amount received during these financial years can be between 45%-110% of the calculated income amount.

Historical drawdown limits

• 1 January 2009 to 30 June 2011, the minimum drawdown limits were reduced by 50%. The annual amount received during these financial years could be between 45-110% of the calculated income amount
• 1 July 2011 to 30 June 2013, the minimum drawdown limits were reduced by 25%. The annual amount received from 1 July 2011 to 30 June 2013 could be between 67.5%-110% of the calculated income amount
• 1 July 2013 ongoing, the original minimum drawdown limits apply. This means the annual payment can be between 90%-110% of the calculated income amount

For Centrelink purposes, the applicable minimum draw down limits will apply when assessing the income stream, even if the customer is receiving less than that amount. There is no change to the way the gross annual income is calculated or assessed.

Note: the deduction amount reduces the amount of gross income assessed under the Income Test.

The income stream provider must provide details of the income stream on a Details of income stream product (SA330) or a similar schedule.

For an income stream from a Self-Managed Superannuation Fund (SMSF) or Small APRA Fund (SAF), the form must be completed by the trustee of the fund (generally the customer for an SMSF), who may get help from their accountant or financial adviser. Some SMSFs may have a retail provider as their administrator, for example AXA, MLC, who may complete the form.

Do not accept a schedule for a non-SMSF sourced income stream if completed by a financial adviser, accountant, or any other person.

Assets: MLIs must meet all the characteristics needed under section 9BA of the Social Security Act 1991 to be 50% asset-test exempt. 50% of the current account balance is an assessable asset. If the income stream does not comply with section 9BA, it is fully asset-tested.

Note: MLIs purchased on or after 20 September 2007 will not comply and are fully asset-tested. Exception: MLIs purchased before 20 September 2007 that are commuted and rolled over into another MLI post 20 September 2007 will comply and can retain their 50% asset-test exemption. The References page has a link to the conditions for retention of asset-test exemption.

Income: gross annual income - deduction amount = assessed income.

MLIs are non-commutable irrespective of if they are asset-test exempt or asset-tested except in extremely limited circumstances. MLIs that are not eligible to retain asset-test exemption and are assessed as asset-tested must still comply with the requirements of section 9BA.

An MLI cannot be jointly owned as jointly owned income streams can only be purchased with ordinary money (that is, non-superannuation money), and not superannuation money. An income stream with a reversionary beneficiary or reversionary partner is not a joint income stream.

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 AISR support. AISR support will request the information directly from the provider.

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

On reversion to a reversionary beneficiary, the income stream is assessed from the date the reversionary is entitled to the income stream payments. This can include lump sum arrears plus the regular ongoing payments. It is treated as a continuation of the original income stream. The purchase price, purchase date and relevant number remain unchanged.

If the original income stream complies with section 9BA, for Asset Test Exempt (ATE) status on reversion, see the References page for the retention of asset-test exemption for ATE income streams. If the income stream loses ATE status on reversion, it is re-assessed as a non-complying asset-tested income stream. Note: income streams will lose ATE status when they are transferred to reversionary beneficiaries that are not specified as reversionary partners. They must be re-coded as non-complying asset-tested income stream.

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.

Customers may advise of new market-linked income streams or updates to existing market-linked income streams using their Centrelink online account. Manual handoff will occur for all new market-linked income streams. It needs an income stream schedule to accompany the update, and in some cases for updates to existing market-linked income streams. If manual processing is needed, the following is created on the customer's record:

• a DOC in Customer First with keyword OIAICS, and
• a work item for staff manual action with the details provided by the customer

Staff can select the Work Item to process the update in Process Direct.

MLIs are account based and are reviewed in August and February each year. See Income stream reviews.