Centrelink pension deeming – Is my client affected?

6/8/2014 11:35AM

Centrelink pension deeming – Is my client affected?

With effect from 1^st January 2015 the way superannuation pensions are treated under legislation for income support payments (e.g. Age Pension, Service Pension, Disability support pension) administered by Centrelink/Veterans agencies, is changing.  This means that the window of opportunity to make changes closes in just over 4 months.

From the 1^st January 2015, all new pensions (unless grandfathered) drawn from superannuation will be deemed. At present if a client has an Account Based Pension (ABP) or Transition to Retirement Income Stream (TRIS),  these are only assessed under the asset test.

For a client that is already in receipt of an income support payment, any ABP or TRIS in place prior to 1^st January 2015, will be grandfathered. That is, they will continue to be assessed under the asset test only.

Therefore, for clients receiving  income support payments, consideration should be given to reviewing the clients circumstances now, thus allowing time to commence or make any changes to their ABP or  TRIS before 1^st January 2015.

For clients not already on Centrelink/Veterans income support, their circumstances should be reviewed to see if they are currently eligible for an income support benefit.

Remember, for the grandfathering to apply, both of the following conditions must be met before 1^st January 2015:

1) The person must be on Centrelink/Veterans income support payment

2) Their ABP/TRIS must have commenced

Full commutation of a pension or transferring from one provider to another after 1^st January 2015 will result in the ABP or TRIS losing its grandfathered status and it will become subject to the new provisions.

Note:   If grandfathering is lost, it cannot be re-instated

What about Reversionary Beneficiaries? For a pension with a documented reversionary beneficiary, nominated before 1^st January 2015, the reversionary beneficiary will continue to have the ABP exempt from deeming, only if at the time of reversion, the reversionary beneficiary is in receipt of an income support payment.

Adding or changing the reversionary beneficiary after 1^st January 2015 will result in the ABP or TRIS losing its grandfathered status and it will become subject to the new provisions. Therefore care must be taken in making any changes.

What about Complying pensions and Market Linked Income Streams (MLIS)? The ability to set up one of these generally finished on 20^th September 2007. A MLIS already in existence will remain grandfathered so long as the member is in receipt of an income support payment.

If the MLIS is rolled to a new provider then it is expected the new MLIS will be subject to deeming.

For a SMSF paying a Complying Pension, if it is commuted due to it failing or the SMSF is wound up due to the trustees age (and not being able to run it any more), then the funds backing the Complying Pension can be transferred to a life office annuity, a MLIS within the SMSF (not available if winding up), or to a MLIS with another company, e.g. retail super fund.

A Complying Pension or new annuity (lifetime/life expectancy) are not deemed, however changing to an MLIS will result in the funds backing the MLIS being deemed. Therefore when making changes to a Complying Pension, consideration needs to be given to the deeming effects if a new MLIS is established.

Time is running out!

Given the changes, time is running out to review and make changes to clients’ arrangements.  Don’t leave it until the last minute to implement any changes, otherwise there may not be time to implement any changes.

A useful checklist of items to do, well before 1^st January 2015:

• Review clients circumstances now
• Consider current and future client circumstances
• If required, rearrange pensions (ABP, TRIS, MLIS, Complying)
• Consider starting pensions with any accumulation accounts (if income support payments applicable)
• Check existing and potential reversionary nominations (make any changes required before January 2015)
• Review potential SMSF windups and Complying Pensions
• See if there are any clients not currently receiving an income support payment, and who could be entitled; apply and start receipt before 1^st January 2015

This is general information only, prepared under AFSL 238337. Before making changes the full circumstances of a clients situation should be considered by a suitably qualified adviser.

6/8/2014 11:30AM

New credit reporting rules

In March this year, new credit reporting rules were introduced in order to provide more clarity about people’s credit behaviour.

The changes will affect both consumers and business, both as creditors and debtors. It will particularly affect businesses as they also need to have regard to the new Australian Privacy Principles.

The Comprehensive Credit Reporting system broadens the type of credit information that can be accessed and with whom that data can be shared.

How do rules affect a business that’s owed money?

If a client/customer has defaulted on a payment, and the business wants to report information about that to a credit reporting body, the business first has to let the client/customer know in writing that they intend to disclose the default. The business then needs to wait 14 days before listing with the credit reporting body.

It is important that both the business and the client understand the correct procedure, being that a notice is required and there is a 14 day waiting period, before reporting.

What are the benefits of the new rules?

From a business’s perspective it is now much simpler to check an existing or potential client/customer’s credit history, thus enabling better discovery of clients with a bad track record for paying bills, either late or not paying at all.

For an SMSF this could be a very useful resource when considering a tenant for a property (commercial or residential), thus checking a potential tenant to see if there is a bad track record.

Want more information?

If you would like to find out more about this, the Australian Retail Credit Association (ARCA) has a useful site: www.creditsmart.org.au