Use complying income streams to minimise the Assets Test

As has been explained in the previous strategy, your entitlement to social security benefits is determined by Centrelink's income and assets tests.

Income stream investments like allocated pensions and immediate annuities receive a favourable income test treatment. However, this will be of little benefit if you fail the assets test.

One way to manage the assets test is to invest some of your retirement capital in a type of income stream product known as a "complying" or "assets test exempt" income stream. Because Centrelink doesn't count this investment among your assets, it may increase your eligibility for Age Pension payments.

How does the strategy work?

Centrelink's assets test distinguishes between account-based investments, such as allocated pensions, and fixed entitlement income investments, such as annuities. The full account balance of an allocated pension is counted under the assets test, while annuities are assessed using a reducing capital formula.

Some term certain, lifetime annuities and superannuation pensions - called "complying" income streams - are exempt from the assets test.

For your investment to qualify as a complying income stream, you must meet a number of criteria. In general terms however, a "complying" income stream must be either payable for life or, if you have reached Age Pension age, for at least 15 years. The exception is if your life expectancy is less than 15 years, in which case the income stream must be for a term equal to your life expectancy (rounded up to the nearest whole year). You can purchase a complying income stream with either superannuation or ordinary money.

Although "complying" income streams receive the same income test assessment as allocated pensions, they are exempt from the assets test. This exemption could enable you to qualify for the Age Pension or, if you would otherwise have qualified for only a part Pension, it could increase your entitlement.

The Benefits

"Complying" income streams are exempt from the social security assets test. By investing some of your retirement savings in this type of income stream, you may be able to qualify for and/or increase your Age Pension payments.