SMSF practitioners and members need to give full consideration to the start date of an account-based pension (ABP) to ensure any changes to it consider Centrelink’s pension grandfathering for pensions commenced before 1 January 2015.
SuperCentral self-managed superannuation executive consultant Michael Hallinan said changes to an ABP could create a disadvantage for a client, including health cards being cancelled, and pointed to the case of Reiter v Department of Social Services, which was heard before the Administrative Appeals Tribunal (AAT) in July 2020.
“In this case, Dr Reiter, the applicant [to the AAT], while not receiving an age pension (due to the means tests), had been granted a seniors health card. The applicant commenced an account-based pension in November 2014,” Hallinan said.
“As the applicant held a seniors health card on 31 December 2014, his entitlement to the card was grandfathered by not having the account-based pension included in the incomes means test, which is used to determine entitlement to the card.”
In 2017, Reiter topped up his pension and in doing so rolled back the account-based pension to the accumulation phase, merged the rollback and top-up amounts, then commenced a new pension on 17 April 2017. Following these actions, his card entitlement was reassessed and cancelled in January 2019.
According to Hallinan, Centrelink justified the cancellation due to the April 2017 pension being considered a new pension, while the November 2014 pension ceased since the rollback of the pensions had terminated it.
“Consequently, in determining the entitlement to the card, deemed income from the April 2017 pension was now counted in applying the seniors health card income test,” he said, adding this decision led Reiter to refer Centrelink’s decision to the AAT, which upheld the original decision.
“The salutary lesson to be learned from this case is that before any action is taken in respect of a superannuation pension, always consider whether the pension is subject to Centrelink pension grandfathering.”
He said if this had been case and the November 2014 pension had not been rolled back, but continued while the top-up amount had been used to commence a second account-based pension, the initial pension would continue to be disregarded for the purposes of applying the Commonwealth Seniors Health Card incomes test.
“The lesson is very simple. If an account-based pension commenced before 1 January 2015, then the pension may be subject to the very valuable privilege of being grandfathered for the purposes of the income tests for the age pension or seniors health card. This is a privilege which should not be lost without careful consideration,” he said.
