Assessing superannuation 108-05070010

Superannuation is an investment to provide financial resources during retirement. On retirement, the money can remain in the superannuation investment or used to start an income stream.

Employers, employees and self-employed people contribute to superannuation funds. Sometimes the government will add to it through co-contributions.

This procedure does not apply to the assessment of adjusted taxable income for family assistance and Paid Parental Leave scheme payments.

Overseas superannuation-like investments do not meet the definition of a superannuation fund in Section 9(1) of the Social Security Act. This means overseas superannuation-like investments are treated as overseas managed investments for social security purposes, provided the person can access the funds.

If a person cannot access the funds for example, because they do not meet a condition of release such as reaching a certain age, the asset value is not assessed as a managed investment.

For more information, see Foreign income and assets.

Customers can set up their own superannuation funds. They are known as self-managed superannuation funds (SMSFs) or small APRA (Australian Prudential Regulation Authority) superannuation funds (SAFs). Most SMSFs and SAFs can be identified by their name. Often the name of the SMSF or SAF will include the customer's family name.

SMSF:

• has less than 7 members
• all members are trustees of the superannuation fund or directors of the trustee company if a corporate trustee exists
• are regulated by the Australian Taxation Office (ATO)

SAF

• has less than 7 members
• has a corporate trustee who is approved by APRA
• are regulated by APRA

Note: an SMSF or a SAF must comply with the Superannuation Industry Supervision (SIS) Regulations. If it does not comply, it is considered a private trust and is assessed under the trust and company rules. For further information, see the definition of a superannuation fund in Section 9(1) of the Social Security Act

Following retirement from the workforce, a person is able to access their superannuation. They can:

• make lump sum withdrawals, or
• convert part or all of their investment into regular ongoing payments from an income stream product such as a superannuation pension or annuity

Where superannuation assets are used to purchase or to commence an income stream, it is assessed under the income stream rules.

Generally, accrued superannuation benefits are not accessible until the fund member leaves the workforce and reaches preservation age. However, the superannuation trustee does permit early release of preserved superannuation benefits in limited circumstances.

Note: regular withdrawals from a superannuation fund are not an income stream. See Assessing withdrawals from superannuation.

There are different types of superannuation investments. They are not to be confused with income stream products like superannuation pensions and annuities.

Customers and/or partners at or over Age Pension age:

• All superannuation investments are assessed under the Income and Assets Tests. For members of a couple, this includes superannuation owned by a partner who does not get an income support payment (ISP)
• Superannuation is assessed under deeming provisions and is coded as a managed investment
• Downsizer contributions from the sale of a customer's principal home are recorded as superannuation and assessed under the Income and Assets Tests
• If the owner of the superannuation is prevented from accessing their fund as a result of the rules of the fund, the Minister for the Department of Social Services (DSS) has the delegation to exempt superannuation investments where certain conditions are met

Note: For Commonwealth Seniors Health Card (CSHC) the income test does not include deeming of superannuation investments in accumulation stage, see Commonwealth Seniors Health Card (CSHC) income test and reference tax year.

Customers and/or partners under Age Pension age:

• A superannuation pension or income stream is assessable under the income and asset rules. For members of a couple, this includes income streams received by a partner who does not get an ISP
• Australian superannuation investments not being used to receive a pension or income stream are exempt under the Income and Assets Tests. Information about them is not to be obtained or recorded unless the superannuation owner is within 13 weeks of reaching Age Pension age
• If superannuation has been coded on the customer's record prior to age pension age, and the customer has not lodged an early claim for Age Pension, this information must be removed from the record
• If the customer advises their assessable assets are less because they have moved money into superannuation:
• ask to see proof but do not code any of the superannuation details
• record on a DOC that the money has now been invested in superannuation

SMSFs or SAFs may have reserves that are set aside within the fund. They are 'unallocated reserves', that is, they are not part of any individual member's superannuation interest in the fund.

The reserves have different names but the most common are investment reserve and miscellaneous or general reserve. These are to be attributed to each member based on the contribution each member has made towards the accumulated reserves. That is, those members with more assets in the fund are likely to have made a larger contribution to generating the unallocated reserves. This may change over time where members make contributions or withdrawals.

Where it is not possible to attribute the reserves based on each member's interest in the fund, the unallocated reserves will be attributed equally to each member of the fund. They are treated as superannuation assets and the assessment will depend on whether the person is either under Age Pension age or of Age Pension age.

Customers may receive a range of benefits paid through different policies as a result of sickness, injury, temporary or permanent incapacity. These benefits may be paid through a superannuation fund, an insurance company or their employer. See Income from personal injury insurance schemes and disability benefits for more information.

If a member is paid a Total and Permanent Disability (TPD) benefit as a one-off lump sum payment, it is treated as a lump sum withdrawal from the superannuation fund. A TPD benefit may also be paid as an invalidity lifetime pension from a defined benefit fund and is assessed as a defined benefit income stream.

The superannuation fund may also make a superannuation contribution to the member's account at the same time as the regular ongoing payments, if needed under the Superannuation Guarantee for the customer. It is not assessed as income. It must not be included in the ongoing payment amount. If the contribution is voluntary, it is assessed as income and included in the ongoing payment amount.