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Reversionary pensioners could miss grandfathering provisions

Individuals with a reversionary pension in place need to review their circumstances in light of the new age pension deeming rules and the associated grandfathering provisions, a financial wealth group has warned.

With deeming rule changes for the age pension set to take effect from 1 January 2015, a super pension will be treated like any other financial asset and will be deemed to earn income, and therefore included in the income test.

That could result in the loss of desperately needed benefits for a surviving spouse, Partners Wealth Group SMSF consulting and auditing director Martin Murden said.

“The current rules determine the amount of superannuation pension that is exempted under the income test,” Murden said.

“The calculation is based on the account balance at the start of the pension and life expectancy.

“If a reversionary pensioner is nominated, then the longer of the life expectancies of the pensioner and reversionary pensioner is used.

“The greater the life expectancy, the lower the amount excluded under the income test.”

Currently, a number of super pensions do not make provision for reversionary pensioners due to the negative impact this could have on Centrelink benefits, which in recent years has become commonplace in SMSFs.

“On the death of the pensioner, provided he or she was survived by a spouse or partner, the survivor simply opted to commence a new pension with the death benefit,” Murden said.

Under the new rules, a new pension would not be grandfathered and would be automatically subject to the new deeming rules, which would impact on the income test irrespective of the amount of pension taken, he added.

To ensure Centrelink entitlement benefits were not lost, Murden recommended superannuation pensioners who qualified to have their pensions grandfathered should review their pension documentation to determine if a reversionary pensioner had been nominated.

“If there is no such nomination or the documents cannot be located, we would suggest pensioners ask their advisers to review the pension arrangements and make changes where appropriate,” he said.

However, nominating a reversionary pensioner was not a simple process, he said.

“The existing pension needs to be commuted and a fresh pension commenced,” he said.

“Before commutation can occur, a pro-rata minimum pension payment needs to be made and the current balance for the pensioner determined.

“With a little over four months to go before the changes take effect, affected clients need to consider their options and take action immediately.”

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