The Department of Social Services (DSS) has released its proposed means testing rules for pooled lifetime retirement income streams.

The pension standards in the Superannuation Industry (Supervision) Regulations 1994 (SIS Regs) were amended from 1 July 2017 to allow for a broader range of tax-exempt lifetime superannuation income stream products that enable the pooling of risk to manage longevity risk. Lifetime pensions and annuities that meet these new standards qualify for concessional tax treatment.

It is proposed that such pooled lifetime income streams would be assessed for social security means test purposes as follows:

  • income test: 70% of all income paid from such products; and
  • assets test: 70% of the nominal purchase price of the product until life expectancy at purchase, and 35% from then on.

The DSS says this approach should still provide a sufficient incentive to support take-up of lifetime products. It is expected that pensioners who allocate a proportion of their superannuation (eg up to 30%) to a pooled lifetime product will experience a similar outcome under the income test in the early years of retirement, compared to holding an account-based income stream and drawing the minimum payments.

Compared to the current means test rules for lifetime products, the DSS believes that assessing 70% of the nominal purchase price until life expectancy balances the up-front concessionality with a more consistent asset test assessment over time. It is also considered that maintaining this asset value until life expectancy will help mitigate the risk of lifetime products being used to shield assets from assessment. Once a person reaches life expectancy (as measured at the time they purchased the product), the assessable asset value will be reduced to 35%. DSS says this will help to address the risk of punitive asset test outcomes later in life, while still recognising an asset value for the product.

Deferred income streams

The new rules propose that deferred superannuation income stream products will receive the same asset test assessment as products that commence payments immediately. However, the proposed income test rules will only assess deferred products once payments commence.

Death and surrender values

Where new products offer surrender values or death benefits above the limits imposed by the "capital access schedule" in the SIS Regs, the assets test will assess the maximum value of:

  • the amount determined under the proposed new rules (70% of the purchase price until life expectancy age, and then 35%);
  • the value of the lump sum amount that is payable if a person withdraws from the product; or
  • the highest death benefit payable under the product.