Advisers must have specific questions at the front of their minds in relation to the changeover to the new pension rules where deeming could potentially hit clients’ entitlements, according to a specialist superannuation lawyer.
In April 2013, the then Labor government announced a proposal to extend the deeming rules for the age pension income test, which will apply to new super pensions from 1 January 2015.
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, unless they choose to change super pension products.
“The interesting aspect of deeming is not the changes itself but the transitional measure,” Townsends Business and Corporate Lawyers special counsel Michael Hallinan told Super Central’s Bacon Super and Eggs seminar in Sydney on Friday.
“The grandfathering provision is set out in item 48 part 2 schedule 11 [of the Social Security Act], but it’s not set out in [detail], so you’re going to have to look at the amending act to find the details.”
Advisers had six fundamental questions they had to deal with in relation to deeming, Hallinan said.
“The initial questions you have to think about [include] which of your clients will be eligible for deeming, which of your clients who commenced a pension before 1 January 2015 will be eligible for deeming, should a client do it if they are eligible and if they are already in pension phase, should they convert to a reversionary basis?” he said.
“More importantly, what actions after 1 January 2015 will put the grandfathering status of the pension in danger and finally, are there any situations where a pension is grandfathered but you could lose that status and go to deeming?”
On the same pension, the amount of counted income calculated under the deductible test when compared to the deeming test was a “wildly different result”, thus the impact of deeming mattered greatly, he said.
“As advisers, you have to be careful as to which pensions are grandfathered and which pensions are not,” he said.
“You don’t want to inadvertently lose the status of a grandfathered pension and therefore you may want to ensure that any withdrawals, lump sum payments and releases are from the non-grandfathered pension to preserve the status of the grandfathering.
“The other point is that you need to consider whether it’s beneficial to switch from a deductible test to a deeming test – there could be circumstances where that’s beneficial.”
He said while he was focusing on the age pension, if a client was receiving another form of income support or benefit allowance, grandfathering would still apply to that superannuation pension.
“Grandfathering will only apply if the member is in receipt of an age pension as at 31 December 2014 and the SMSF pension was in existence as at 31 December 2014,” he said.
“The grandfathering will continue, which means that pension will be subject to the deductible test, not the deeming test post 1 January 2015 so long as the member remains in receipt of the age pension and the SMSF pension is not restructured.”
The adverse impact of the deeming test would be reinforced on 20 September 2017 once the income-free thresholds reverted back to $30,000 for singles and $50,000 for couples, he said.
