Adding or updating a pooled lifetime income stream 108-19041857

Pooled lifetime income streams:

• are defined by the Social Security Act as an asset-tested income stream (lifetime)
• have a purchase date on or after 1 July 2019
• are guaranteed to be payable for the owner's lifetime and ceases upon their death. The purchaser, (primary beneficiary), can nominate a reversionary beneficiary. Following the purchaser's death payments continue to be made to a reversionary beneficiary for the rest of their lifetime
• cannot be paid from a Self-Managed Superannuation Fund (SMSF) or a small APRA
• can be purchased with superannuation money or ordinary savings known as non-superannuation money
• can be purchased with a lump sum or in instalments
• allow customers to delay or defer the commencement of payments for a period of time after purchase. They may be referred to as a deferred lifetime income stream

Pooled lifetime income streams are assessed under new means testing rules.

Note: lifetime income streams purchased before 1 July 2019 are grandfathered. They are assessed under the assets and income test rules that applied at the time of purchase.

A pooled lifetime income stream will have an 'assessment day'. If the customer defers the start of payments from the income stream, it can delay the assessment day.

The assessment day can vary:

• due to the customer's age, and
• if the income stream was purchased with superannuation or ordinary money

The assessment day for the pooled lifetime income streams purchased with superannuation money is the later of:

• the date the customer meets the condition of release for their superannuation and payments have started. Conditions of release include where the customer has a terminal or permanent medical condition, or because they have retired or turned 65
• the day the first amount was paid for the income stream, for example the purchase date
• the day the person acquired the income stream (reversionary income stream)

The assessment day for pooled lifetime income stream products purchased with non-superannuation money is the commencement day of payments if earlier than Age Pension age, or the later of the day the:

• first amount was paid for the income stream, for example the purchase date
• person reaches Age Pension age
• person acquired the income stream (reversionary income stream)

Some simple rules to use as a guide

• the assessment day is the purchase date where the product is purchased or acquired after Age Pension age
• For deferred lifetime income streams purchased with:
• superannuation money - the assessment day will be age 65, or earlier if the person meets a condition of release (such as commencing regular income payments
• non-superannuation money - the assessment day will be Age Pension age, or earlier if the person meets a condition of release (such as commencing regular income payments)

The value of the income streams which are yet to reach their assessment day increases annually by the upper deeming rate.

Pooled income streams are purchased with a lump sum or through instalments. Both the initial purchase price, and the value of any instalments increase on their respective anniversary dates. This will continue until the income stream reaches its assessment day.

For example:

A customer purchases a pooled lifetime income stream with 2 instalments:

• $100,000 on 1 Jan 2020, and
• $100,000 on 1 Jul 2020
• Total value $200,000

1 Jan 2021 is the anniversary date of the first instalment:

• On that date, the value of the first instalment will increase at the upper deeming rate, for example, 3.25% or $3,250
• The new value of the income stream as at 1 Jan 2021 is $203,250.

The value of $203,250 remains until 1 Jul 2021. This is the anniversary date of the second instalment. The value of the second instalment will increase by 3.25% on 1 July 2021.

The system will review each instalment on its 12-month anniversary until the product reaches its assessment day.

Asset testing the value of the income stream before the assessment date

If the income stream is purchased with:

• superannuation money, the amounts recorded are exempt from the assets test
• non-superannuation money, the amounts are assessed as managed investments. Note: although the product is assessed as a managed investment, they are keyed as an income stream and not on the managed investment screen

From the assessment day, the new means test rules for pooled lifetime income streams apply.

If the initial purchase price, or any instalments were paid before the assessment day, their value is re-assessed on the assessment day. The upper deeming rate is applied for the number of days since the:

• last anniversary of the payment if it was made more than a year ago, or
• date of the payment if it was paid within the last year

The purchase price of a pooled lifetime income on the assessment day is:

• the total of the amounts after the calculation described above
• less any commuted amounts

From the assessment day, deeming does not apply. The value of the purchase price (initial payment plus any instalments), will only increase if the customer makes another instalment.

Unlike other income streams, the calculated purchase price is not the amount used as the asset value of the income stream product when the assessment day is reached.

Income

After the assessment day, 60% of the gross payments is assessed as income.

Asset value

After the assessment day, the assessed asset value is the same for income streams purchased with superannuation or non-superannuation money.

From the assessment day to the threshold day, the asset value is assessed at 60% of the purchase price if the income stream meets limits on how much capital can be accessed by:

• the person if they surrender the income stream product, or
• their estate if they die

Limits on the amount of capital that can be accessed are imposed on income streams from superannuation funds by the Capital Access Schedule (CAS). The CAS is under the Superannuation Industry (Supervision) Regulations 1994.

For pooled lifetime income streams which exceed the CAS limit, the asset value is the greater of:

• 60% of the purchase price
• any current or future surrender value above the CAS, or
• any current or future death benefit above the CAS

The product’s threshold day is the later of:

• the day before the customer’s 84th birthday (the current relevant birthday), or
• the last day of the 5 year period starting on assessment day

Note: the relevant birthday is specified in a legislative instrument. It is based on the life expectancy of a 65-year old male. The threshold day may change for new products if the life expectancy for 65-year old males changes.

The asset value of the income stream changes on the threshold day. If the product complies with the CAS limit, the asset value reduces to 30% of the purchase price.

For pooled lifetime income streams that exceed the CAS limit, the asset value on or after the threshold day is the greater of:

• 30% of the purchase price
• any current or future surrender value above the Capital Access Schedule, or
• any current or future death benefit above the Capital Access Schedule

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

Commutations from pooled lifetime income streams may be allowed by the income stream provider. A commutation would reduce the purchase amount for assets test purposes.

Customers must use non-superannuation or ordinary money to purchase a pooled lifetime income stream if it is to be in joint names. Each owner of the joint income stream receives a payment. An income stream that has a single owner with a reversionary beneficiary is not a joint income stream.

The purchase price and the gross income must be split according to the percentage each person owns. The separate amounts are recorded on the customer's and the record of the other joint owner, for example, the partner's record. The relevant number is the same for both income streams, based on the Life Expectancy of the eldest of the joint beneficiaries.

If the income stream is jointly owned it should have ‘Jointly owned’ in the product name field.

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.

On reversion to a reversionary beneficiary the income stream is assessed from the date the reversionary beneficiary is entitled to receive the payments. This will be the day after the death of the primary beneficiary. If the assessment day had been reached, the reversionary income stream is treated as a continuation of the original income stream.

If the lifetime income stream was originally purchased before 1 July 2019, it will continue to be assessed under the pre-1 July 2019 means test rules.

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:

• where 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 that occur before 9 May 2018 cannot be waived using these rules.

See the References page for a link to the legislation.

The customer can invest the proceeds from the sale of the principal home in an 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.

Customers can advise of new pooled lifetime income streams using their Centrelink online account. The customer must still provide a Centrelink schedule or Details of Income Stream Product form (SA330). The system generates a manual handoff to check the customer has uploaded their schedule. A DOC is recorded in Customer First with the keyword OIAICS, and a work item for staff manual action will be generated on the customer's record containing the details provided by the customer. Staff can select the work item to process the update in Process Direct.

Customers cannot make changes to existing lifetime income streams online.

This product consists of a lifetime income stream component called CarePlus Annuity and an insurance component called CarePlus Insurance. These are assessed and coded separately. See the Resources page for a link to the FINS Bulletin for more details.