Grandfathered ABPs – keeping them alive beyond 2015

Promoted by ColonialFirstState


Since 1 January 2015, the way Centrelink assesses account based pensions (ABPs) under the income test falls into two categories:

  • grandfathered under the pre-2015 rules, or

  • deemed like other financial investments.

As a result, there are a number of issues advisers need to be mindful of when dealing with ABPs from 1 January 2015.

Is the ABP actually grandfathered?

The first step is to determine whether the ABP is grandfathered. For ABPs commenced on or after 1 January 2015, it is obvious that they are deemed.

However, for ABPs commenced before 1 January 2015, advisers need to ascertain from the client or Centrelink whether the ABP is grandfathered. This is particularly important for new clients and even existing clients as their circumstances may change over time, causing the loss of grandfathered status.

Superannuation funds are not able to confirm whether an ABP is grandfathered as they do not know whether the client has continuously received a Centrelink/DVA income support payment since 1 January 2015.

Dealing with clients with grandfathered ABPs

If a pre-1 January 2015 ABP is grandfathered, Centrelink/DVA will continue to assess the annualised pension payment that exceeds the deductible amount. This may result in a more favourable income test treatment compared to having the account balance subject to deeming, which will be the case if grandfathering is lost.

Care must be exercised when dealing with pre-1 January 2015 ABPs to ensure grandfathering is not inadvertently lost as a result of financial advice. Grandfathering can be lost under any of the following three circumstances:

  • ceasing to qualify for an income support payment

  • ceasing the grandfathered ABP

  • death.

Ceasing to qualify for an income support payment (ISP)

If a client’s Centrelink/DVA ISP ceases, they will lose grandfathering on their ABP. Even if the client resumes receiving an ISP shortly afterwards, as long as there is a gap in payment, grandfathering will be lost.

There are many ways for a client to lose entitlement to an ISP. Essentially anything that results in a spike in income or assets or failure to meet ongoing eligibility criteria may lead to cancellation. Examples include:

  • receiving an inheritance or proceeds from downsizing 

  • spouse’s superannuation becoming assessable after attaining age pension age 

  • leaving Australia to travel or live overseas, or

  • death of a partner

Ceasing the grandfathered ABP

An ABP will no longer be grandfathered when it is fully commuted and cashed out or rolled over, including in the following circumstances:

  • adding or removing a reversionary beneficiary if recommencement is required (see below);

  • changing pension providers, or

  • rolling back to accumulation phase.

Note: an ABP will not cease following a partial commutation or one-off irregular pension payment taken from the pension; hence this will not result in the loss of grandfathering.


Where a reversionary beneficiary has not been nominated and a new death benefit income stream is paid to a surviving spouse on death on or after 1 January 2015, the new income stream will be deemed for Centrelink income test purposes.

However an ABP will retain its grandfathered status on death if it automatically reverts to a reversionary beneficiary who is in receipt of an ISP at the time of reversion.

In some cases, it may be possible to add a reversionary beneficiary to an existing ABP without commuting and recommencing the ABP, however most superannuation funds do not permit it.

The superannuation and tax legislation is unclear as to whether a reversionary beneficiary can be added to an existing ABP without recommencing the ABP.  It then depends on the governing rules of the superannuation fund as to whether this is permitted. Centrelink acknowledge that, subject to the governing rules of the fund, a reversionary beneficiary may be added or removed from an existing ABP.

Where a reversionary beneficiary is able to be added to an existing ABP without re-commencing the ABP, advisers should really consider whether it’s in their client’s interest to take advantage of this option.   Adding a reversionary beneficiary can significantly increase the Centrelink entitlements of the surviving spouse, however care needs to be taken as the deductible amount will be recalculated using the longest life expectancy between the primary and reversionary beneficiary at commencement of the ABP, which could result in a lower annual deductible amount from the date the change occurs.

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The information contained in this update is based on the understanding Colonial First State Investments Limited ABN 98 002 348 352, AFS Licence 232468 (Colonial First State) has of the relevant Australian laws as at 7 April 2015. As these laws are subject to change you should refer to our website at or talk to a professional adviser for the most up-to-date information. The information is for adviser use only and is not a substitute for investors seeking advice. While all care has been taken in the preparation of this document (using sources believed to be reliable and accurate), no person, including Colonial First State or any other member of the Commonwealth Bank group of companies, accepts responsibility for any loss suffered by any person arising from reliance on this information. This update is not financial product advice and does not take into account any individual’s objectives, financial situation or needs. Any examples are for illustrative purposes only and actual risks and benefits will vary depending on each investor’s individual circumstances.

You should form your own opinion and take your own legal, taxation and financial advice on the application of the information to your business and your clients. Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information.

Colonial First State Investments Limited is also not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.

Grandfathered ABPs – keeping them alive beyond 2015
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