Income streams

Last updated: 
16 January 2020

This page explains what income streams are and how they affect DVA income support payments (service pension, income support supplement, age pension and veteran payment). Information about how income streams affect Commonwealth Seniors Health Card is contained in Commonwealth Seniors Health Card.

What is an income stream?

An income stream is a regular series of payments that are all of the following:

  • made for life or for a fixed term
  • purchased with a capital sum or made directly from accumulated superannuation contributions
  • paid from a financial institution, public or private sector superannuation fund, self managed superannuation fund (SMSF) or a small APRA fund (SAF)

How are income streams defined for Veterans' Affairs pension or payment purposes?

This page is relevant to income streams for any of the following that:

  • arise under arrangements that are regulated by the Superannuation Industry (Supervision) Act 1993
  • arise under a public sector superannuation scheme
  • arise under a retirement savings account
  • are provided by a life insurance business (within the meaning of the Life Insurance Act 1995).

What are common income streams?

Some common income streams include:

  • account-based pensions/ allocated pensions
  • transition to retirement pensions
  • market linked pensions/ term allocated pensions
  • immediate annuities/ account-based annuities
  • deferred lifetime annuities
  • superannuation pensions (non-defined benefit)
  • defined benefit superannuation pensions

What are not income streams?

The following are not income streams:

  • available money
  • deposit money
  • managed investments
  • listed securities
  • loans that have not been repaid in full
  • unlisted public securities

How are income streams assessed?

Income streams are assessed according to the term and characteristics of the income stream contract or governing rules. The commencement date of the income stream and whether or not the owner of the income stream has been in continuous receipt of an income support payment may also be relevant.

What is a defined benefit income stream?

A defined benefit income stream must meet the definition of a 'pension' specified in the Superannuation Industry (Supervision) (SIS) Regulations 1994.

Defined benefit superannuation pensions are usually paid from a traditional employer based defined benefit fund or scheme. These income streams must be paid for the lifetime of the recipient and must be attributable to a 'defined benefit interest' as defined in the SIS Regulations. Payments from these income streams are commonly determined by factors such as years of service, age and final salary, rather than by purchase price or the value of the employee and employer contributions. Some common defined benefit income streams include both of the following:

  • public sector superannuation pensions, such as Commonwealth and State Government superannuation pensions
  • private sector corporate employer funded superannuation pensions, such as banking and mining industry schemes.

Income assessment

The gross payment you receive, minus a deduction, is assessed as income. The deduction is known as the deductible amount or the tax free component and is calculated by your income stream provider under the tax law (not necessarily the same as the amount of your superannuation pension that is tax free). If you receive an age pension from DVA, the deductible amount allowed (from 1 January 2016) is capped at 10 per cent of the gross payment for any non-military superannuation defined benefit income streams.

Assets assessment

Defined benefit income streams do not have any asset value.

What is an asset-test exempt income stream?

An asset-test exempt income stream must be purchased before 20 September 2007 and either of the following must apply:

  • be paid for your lifetime
  • be paid for a fixed period based on your life expectancy or within an approved life expectancy range

and it must follow other rules such as:

  • make payments at least annually
  • limit indexation to no more than 5% or CPI plus 1% in any year
  • convert the purchase price wholly into income
  • have no residual capital value
  • have limited commutations
  • have limited reversionary benefits

Income assessment

The gross payment you receive, minus a deduction, is assessed as income. The deduction calculation represents the return of your purchase price over the term of the income stream.

Assets assessment

If your income stream is 100% exempt (purchased before 20 September 2004), then no asset value is counted.

For partially asset-test exempt income streams (purchased after 20 September 2004 and before 20 September 2007), only half the asset value of the income stream is assessed. The asset value of your income stream is your current account balance or, if your income stream does not have a current account balance, the asset value is the purchase price (reduced to take into account the portion of the purchase price already returned to you in payments).

What is an asset-tested long-term income stream?

An income stream is an asset-tested long-term income stream where it:

  • is not an asset-test exempt income stream, and
  • has a specified term more than 5 years (that is, not for your life), or
  • has a specified term of 5 years or less and is equal to or greater than or equal to your life expectancy, or
  • is paid for your life and was purchased or aquired before 1 July 2019

Income assessment

The gross payment you receive, minus a deduction, is assessed as income. The deduction calculation represents the return of your purchase price over the term of the income stream.

Account-based pensions, allocated pensions and transition to retirement pensions are assessed this way if they have a commencement date prior to 1 January 2015 and the owner has been in continuous receipt of an income support payment since 31 December 2014.

If your account–based pension, allocated pension or transition to retirement pension commenced on or after 1 January 2015, then the asset value of your income stream is treated as a financial asset and income is assessed under the deeming rules.

If you are the owner of an account-based pension, allocated pension or transition to retirement pension with a commencement date prior to 1 January 2015 and you have not been in continuous receipt of an income support payment since 31 December 2014, the asset value of your income stream is treated as a financial asset and income is assessed under the deeming rules.

For more information on Deeming see Deeming and Financial Assets.

Assets assessment

The asset value of your income stream is your current account balance or, if your income stream does not have a current account balance, the asset value is the purchase price (reduced to take into account the portion of the purchase price already returned to you in payments).

What is an asset-tested short-term income stream?

An income stream is an asset-tested short-term income stream if the term is 5 years or less and is not any of the following:

  • an asset-tested long-term income stream
  • an asset-tested lifetime income stream
  • an asset-test exempt income stream

Income assessment

The asset value of your income stream is treated as a financial asset and income is assessed under the deeming rules.

For more information on Deeming see Deeming and Financial Assets.

Assets assessment

The asset value of your income stream is the purchase price (reduced to take into account the portion of the purchase price already returned to you in payments).

What is an asset-tested lifetime income stream?

An income stream is an asset-tested lifetime income stream if all of the following apply:

  • once regular income payments commence, the payments continue for the rest of the owner's life
  • the amounts paid are based on the age, life expectancy or other factors relevant to the mortality of the owner
  • it is not an asset-test exempt income stream
  • it is not a defined benefit income stream
  • it was purchased or acquired on or after 1 July 2019.

Income assessment

60 per cent of the gross payment you receive is assessed as income.

If your income stream has not commenced making regular payments, you purchased the income stream with non-superannuation monies, and you are under pension age, the asset value of your income stream is treated as a financial asset and income is assessed under the deeming rules.

Assets assessment

Generally, the asset value of your income stream is:

  • Sixty (60) per cent of the amount you paid to purchase the income stream until you reach the life expectancy of a 65 year old male (currently 84 years old)
  • 30 per cent of the amount you paid to purchase the income stream after you reach the life expectancy of a 65 year old male

If you purchased the income stream with superannuation monies and you are not able to receive payments from the income stream because you have not satisfied a condition of release, then no asset value will be assessed for your income stream.

If your income stream has not commenced making regular payments, you purchased the income stream with non-superannuation monies and you are under pension age, the value of your income stream is the amount you paid to purchase the income stream.

If you paid amounts to purchase the income stream whilst deferring the commencement of the income stream payments, when calculating the value of your income stream, the value of the purchase amounts will be compounded annually by a percentage equal to the upper deeming rate that is used to calculate income on financial assets.

If your income stream has a surrender value or death benefit that is greater than the limits imposed by the Capital Access Schedule in the Superannuation Industry (Supervision) Regulations 1994, then the value of your income stream will be the highest surrender value or death benefit, if this is greater than the value that would otherwise be assessed.

Re-valuing the asset value of your income stream

For asset-tested short term income streams and asset-tested long-term income streams that do not have a current account balance, we automatically revalue your income stream:

  • every 6 months, if you receive payments more than once a year from your income stream, or
  • every 12 months, if you receive only one payment a year from your income stream

What information does DVA need about your income stream?

If you buy or commence an income stream, you will need to provide us with a 'Income Stream Schedule' from the provider of your income stream and tell us where you transferred the money from to buy or commence the income stream.

If you withdraw money from your income stream, you will need to provide us with a revised 'Income Stream Schedule' from the provider of your income stream and tell us the following information:

  • how much money you withdrew
  • what you did with the money you withdrew.

If your income stream term expires and all or part of your purchase price is returned to you, you will need to tell us the following information:

  • how much money was returned to you
  • what you did with the money returned to you.

We need this information to ensure that you are paid the correct rate of income support pension or payment.

Obligations

You need to tell DVA within 14 days (28 days if you live overseas or receive remote area allowance) if:

  • you or your partner buy or commence receiving an income stream
  • you or your partner switch from one income stream to another
  • you or your partner withdraw money from your income stream
  • you or your partner's gross annual payment amount changes, or
  • you or your partner's income stream term expires.

You do not have to tell us if:

  • you are on the maximum rate of pension or payment and your total fortnightly income, after the changes to your income stream income, does not take you over the income free area (for service pensioners) or the adjusted income free area (for those receiving the income support supplement) by at least $2.00 for singles or $4.00 for couples, or
  • you are receiving the reduced rate of pension or payment; and your income stream income plus your income from other sources increases by less than $2.00 per fortnight if you are single or $4.00 if you are a couple

Usually an overpayment will not occur when you have met your obligations. However, sometimes even if you have met your obligations, an overpayment can occur because we have not been able to process the change before the next payday. We do our best to avoid this occurring, but it is not always possible. To provide you with your exact entitlement we are obliged to recover overpayments where they do occur.

Further information about income streams

The Australian Securities and Investments Commission (ASIC) MoneySmart website provides financial information to help you make the most of your money. The MoneySmart website also has a register of suitably qualified financial advisers who hold an Australian Financial Services licence. You can contact ASIC by telephone on 1300 300 630 or visit MoneySmart.

The Financial Planning Association of Australia (FPAA) also provides contact details for financial planners that are members of the FPAA and information about how to choose a financial planner. Visit FPAA

Centrelink runs a free Financial Information Service (FIS) which provides education and information on financial and lifestyle issues to all Australians. Any personal information given to FIS officers is treated as confidential. FIS can be contacted by telephone on 132 300.