Asset test exempt complying pensions

The Government is set to permanently waive the Centrelink five-year clawback for SMSFs and SAFs that restructure ATE complying pensions to a term allocated pension. Julie Steed outlines the impact of the changes.

In April 2011, the Minister for the Department of Families, Housing, Community Services and Indigenous Affairs, the Hon Jenny Macklin MP, signed a Social Security Specification that would permanently waive the Centrelink five-year clawback for SMSFs and SAFs that restructure asset test exempt (ATE) complying pensions to a term allocated pension (TAP).

The exemption does not apply to retail income stream products.

The arrangements will apply to both 100 per cent and 50 per cent ATE lifetime and life expectancy pensions in SMSFs and SAFs.

Unlike the temporary relief that applied for the 2009-10 year, there will be no requirement for the ATE complying pension to have failed the high probability test.

Any restructure to a TAP will result in the loss of the asset test exemption going forward, however, the Centrelink five-year clawback will not apply.

This news will be welcomed by many clients whose account balances have reduced to the point where the balance no longer affects their Centrelink entitlements under the assets test. This will also provide relief for ageing clients in SMSFs who no longer want the burden of running their own fund.

The Social Security Specification is a disallowable instrument that was registered on 3 June, 2011.

The specification can only take effect if it is presented before each House of Parliament for 15 sitting days and if it is not disallowed during this time.

It seems unlikely that the specification will be disallowed and it can be expected to come into effect in late August.

Options for clients

 The new regime will provide three avenues for clients with an ATE complying pension in SMSFs and SAFs to restructure their pensions:

TAP Options

Many product providers closed their TAP products around September 2007 when the 50 per cent assets test exemption was reduced to nil. However, the IOOF Portfolio Service offers a TAP option.

Conclusion

This relief provides an opportunity for advisers to assess the value of the current Centrelink ATE status of any complying pensions held by their clients in SMSFs and SAFs and to restructure to a TAP if this meets the client’s needs.

 Julie Steed is technical services manager at IOOF.