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Retirees need to be wary of pension deeming
Australians will need to re-think their retirement plans as the Federal Government tweaked the Centrelink legislation relating to extending the current deeming rules to include account-based pensions (ABP).
That is the warning from accounting firm RSM Bird Cameron, which said the main impact retirees will face under future deeming provisions will be the lack of control on their assessable income.
"Under current rules the income assessment is determined by the ABP income received less the deductible amount and therefore there is a degree of control by the pensioner to maximise their entitlement under the income test," RSM Bird Cameron Financial Services financial adviser Nick Andrews said.
"This flexibility will be taken away from the individual under the new regime."
While most financial assets are deemed, the new legislation will include ABP. Under the deeming process, there is an assumption that assets earn a "deemed" return based on a rate set by the Government and actual returns on assets are ignored.
"Based on current deeming rates the impact of these changes will initially be mild as many retirees are likely to be currently assessed under the asset test. However, if deeming rates rise in the future the number of retirees affected and the severity of the impact will likely increase," Andrews said.
Pensioners already receiving Centrelink/Department of Veteran's Affairs income support and started ABP before 1 January 2015 will have their situation ‘grandfathered', and will not be affected by the new rules unless they rollover their ABP.
"It may be that the new regime results in a superior outcome. However, if these changes have the potential to reduce your retirement income, time is running out to make sure your finances are in order before the new changes come into effect."
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