From 1 January 2015, the income test assessment (the assets test assessment remained unchanged) for account-based pensions (ABPs) changed to be treated under the deeming provisions for entitlements such as the Age Pension and Commonwealth Seniors Health Card (CSHC). When the rules changed, existing ABPs were grandfathered and retained their existing assessment if certain rules were met.
The rules to retain grandfathering meant that certain strategies could not be considered for grandfathered ABPs after 1 January 2015. Strategies such as switching providers to save on fees, a recontribution strategy and adding a reversionary beneficiary were largely not possible without losing the grandfathering status.
While the income test assessment for ABPs purchased prior to 1 January 2015 can be more favourable compared to deeming, it might be worth revisiting whether this still holds true for clients in light of recent changes, like:
Recap of grandfathering rules for ABPs
- reduced deeming rates
- reduced minimum drawdown rates for 2020/21
- a reduction in balances due to the impact of COVID-19.
ABPs that commenced prior to 1 January 2015 are grandfathered and assessed using the deduction method if certain rules are met. It should be noted that the grandfathering rules for income support payments are different to the grandfathering rules for the CSHC. For instance, if an ABP is grandfathered for Age Pension purposes, it does not mean that it is automatically grandfathered for the CSHC and vice versa.