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Published 15 December 2011 14:02, Updated 15 December 2011 14:06
Reader’s question: I’ve heard reference made to a relevant number with regard to pensions and Centrelink benefits. Does it apply to account-based pensions and if so, how might this have an impact on income?
The relevant number, says Centrelink, applies to all pensions or income streams. It therefore applies to account-based super pensions.
This number is used to reduce pension income assessed under the Centrelink income test. The income assessed by Centrelink is the gross annual income reduced by the deduction amount. The formula for the deduction is the “original purchase price less commutations divided by the relevant number”. The “original purchase price” is the money committed to the pension or income stream.
Where there is no reversionary beneficiary (someone who inherits the pension if the primary or first pensioner dies) or where reversion is at the absolute discretion of the trustee, the relevant number is the life expectancy factor of the primary beneficiary. Life expectancy factors, or numbers, can be found in the Australian Life Tables current at commencement of the income stream.
Where there is a binding reversionary nomination, the relevant number is the longer life expectancy of either the primary or the reversionary beneficiary. For example, if a 65-year-old male nominates his 60-year-old partner as a reversionary beneficiary, her 26-year life expectancy in the Australian Life Tables will be the relevant number rather than his 18.54 life expectancy.
The relevant number must always be the one that applies at the commencement of the pension or income stream and is not changed following partial commutation.
Where the income stream automatically reverts to a reversionary beneficiary, the relevant number will not change.