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By Stuart Sheary, Senior Technical Manager
A: Services Australia have recently confirmed that any lump sum arrears relating to the periodic payment of a defined benefit income stream are assessable as income for Centrelink purposes.
The income is assessed prospectively for up to 52 weeks from the date your client was advised of the decision to pay the lump sum amount. The income will be apportioned into a fortnightly amount which may reduce entitlements to a Centrelink pension under the income test.
If your client is paid $500,000 in lump sum, in arrears, this will translate into fortnightly income of over $19,230 for the next 12 months. This means that your client will not be eligible for a Centrelink pension such as a disability support pension or age pension under the income test for the next 12 months as his income exceeds the income test cut-off threshold.
Fortunately, as the payment is prospective past Centrelink pension entitlements will not need to be repaid.
Clients in a similar situation should contact Centrelink to confirm any impact on their entitlements.
For further information on the treatment of lump sum arrear payments where the client's Centrelink notifiable event is the date of notice of the arrears payment please see the Social Security Guide 22.214.171.124. See also Social Security Guide 1.1. L.140 on the assessment of some non-remunerative lump sums.
Assessment of the invalidity lifetime pension
Invalidity lifetime pensions paid from a defined benefit fund such as CSS are assessed as a defined benefit income stream. These income streams may have a deductible amount which may reduce the amount of income assessed.
The deductible amount is ordinarily limited to a maximum of 10% meaning the at least 90% of the pension will be assessable. The pension has no asset value for Centrelink purposes.
For more information please see SG01 - Defined benefit funds on the TechConnect Fast Fact Finder site.
If you have any questions, or would like more information, please contact the IOOF TechConnect team on 1300 650 414.
The information in this section of the website is intended for financial advisers only and is not to be distributed to clients. It has been prepared on behalf of Australian Executor Trustees Limited ABN 84 007 869 794 AFSL 240023, IOOF Investment Management Limited ABN 53 006 695 021 AFSL 230524, IOOF Investment Services Ltd ABN 80 007 350 405, AFSL 230703 and IOOF Ltd ABN 21 087 649 625 AFSL 230522 based on information that is believed to be accurate and reliable at the time of publication.