Proposed super deeming rules change could hit pensioners too, financial planner warns

The proposed changes to super rules announced by the federal government last week will hit the back pockets of ordinary pensioners with small super balances, not just those with property-laden self-managed super funds.

Federal treasurer Wayne Swan announced that from July 1 2014, earnings above $100,000 will be taxed at the same concessional rate of 15% that applies to earnings in the accumulation phase.

Swan said this would impact on just 16,000 account holders and result in a fairer superannuation system.

However, the announcement also included the extension of normal deeming rules to superannuation account-based income streams for the purposes of the age pension income test.

“Under the change announced today, standard pension deeming arrangements will apply to new superannuation account-based income streams assessed under the pension income test rules after 1 January 2015,” said Swan.

“All products held by pensioners before 1 January 2015 will be grandfathered indefinitely and continue to be assessed under the existing rules for the life of the product so no current pensioner will be affected, unless they choose to change products.”

According to financial planner Phil Clinton, the changes to deeming rules will mean that a single person with a modest pension of $150,000 will receive $26 less per week.

Speaking to Ross Greenwood on 2GB, Clinton, from Halcyon Wealth Advisers, explained that in the past if you had your money in an allocated pension – the next phase after accumulating it in a super fund – you would not be deemed to have earned anything from that fund and could claim a full pension.

“That was the benefit of having your money in that pension fund,” he said.
But under the proposed extension of deeming rules, from January 1 2015 the first $45,400 will be deemed to earn income at 2.5% and anything above that at a rate of 4%.

Clinton provided the example of someone with a modest super fund worth a $150,000, who owns their own home (which is exempt from the asset test) and have bank accounts plus some home contents, which add up to less than $192,500 – the assets limit for a single homeowner before the age pension reduces.

“[Under the proposed changes] they are deemed to get 2.5% on the first $45,400, which equals $1,135 and the remaining $104,600 is deemed at 4%, which equals $4,185.

“So a pension would be deemed to earn a total of $5,319 that that they previously would not have earned.

“Currently they receive a full pension if their income does not exceed $152 a fortnight.

“Under this rule they will be deemed to have earned $204.57 per fortnight

“The pension reduces by 50 cents for every dollar over the $152 limit, so they will lose $26.28 per fortnight in pension,” said Clinton.

Clinton acknowledged the federal government’s statement that products held by pensioners before January 1 2015 would be grandfathered indefinitely but said the key words were “for the life of the product”.

That he said was “the kicker”.

“What happens if you change from one allocated pension to another, you are now in a separate product?

“We don’t know for sure but they may remove the grandfathering in that case.”

As of March this year, a single person eligible for the full age pension can now expect an annual income of around $21,020.

A couple is eligible for around $31,700.

This article first appeared on Property Observer.