Lifetime annuities purchased after 1 July 2019 only get favourable Centrelink treatment — 60% of purchase price assessed for assets test (30% after age 84), 60% of payments assessed for income test — if they comply with the capital access schedule. Products with guaranteed withdrawal or capital return features fail this test and are assessed like an account-based pension instead: full balance, full deeming.
If you are comparing lifetime annuities as part of your retirement income plan, you may be doing so partly because of their Age Pension advantages. From 1 July 2019, the government introduced more favourable Centrelink treatment for certain lifetime income streams. Products that comply with a "capital access schedule" receive a substantially reduced assets test assessment compared with an account-based pension. The problem is that not all lifetime annuity products comply. Products that include a guaranteed withdrawal feature or guaranteed capital access may fail to meet the schedule's requirements — and if they do, they receive no assets test reduction at all. Two products marketed similarly can have dramatically different Centrelink outcomes.
For lifetime income streams purchased on or after 1 July 2019 that comply with the capital access schedule, Centrelink assesses 60% of the original purchase price as the assessable asset value, from the commencement date through to the threshold day — the day before the holder's 84th birthday. After the threshold day, only 30% of the purchase price is assessed for the remaining life of the income stream (DSS Guide 4.9.3.35, https://guides.dss.gov.au/social-security-guide/4/9/3/35). Compare this with an account-based pension: the full account balance is assessed, and it reduces only as funds are drawn down. For a $400,000 lifetime annuity versus a $400,000 account-based pension, the compliant annuity adds $240,000 to assessed assets under the assets test, while the account-based pension adds $400,000.
Under the income test, the difference is also material. For compliant lifetime income streams, 60% of the gross annual payment is assessed as income — the remaining 40% is treated as return of capital and excluded. This is distinct from deeming, which applies a legislated notional rate to the full account balance regardless of what is actually drawn. For many retirees, particularly those drawing relatively modest income from a larger balance, the 60% of actual payment figure will be lower than the deeming return on the equivalent ABP balance. The advantage depends on how much the annuity pays relative to what deeming would produce on the same purchase price (Services Australia, https://www.servicesaustralia.gov.au/income-streams?context=22526).
Non-compliant products receive none of these advantages. If a product includes a guaranteed minimum withdrawal benefit, a guaranteed capital return feature, or similar provisions that allow more capital access than the capital access schedule permits, the favourable treatment is lost entirely. The assessed value reverts to treatment closer to an account-based pension: full balance assessed under the assets test, and deeming applied under the income test. The compliance determination is based on product design, not product name. A retiree may buy a product specifically expecting the reduced assets test assessment, without knowing that a feature embedded in the product design has disqualified it. Lifetime annuities are generally illiquid or carry significant surrender costs, which makes this difficult to reverse once the commitment is made.
The practical table: for a compliant lifetime annuity (post-2019): assets test at 60% of purchase price (reducing to 30% from age 84); income test at 60% of gross payments. For an account-based pension: assets test at 100% of current balance; income test via deeming on full balance. For a non-compliant lifetime annuity: assets test at full assessed value with no capital access schedule reduction; income test via deeming. The difference between the compliant and non-compliant columns, for a retiree sitting close to the assets test threshold, can determine whether they receive a part Age Pension or none at all.
Before committing to a lifetime annuity product, it is worth asking the product provider directly whether the product complies with the capital access schedule under the Social Security Act 1991. If the product includes any guaranteed withdrawal or capital return feature, obtain a written confirmation from the provider of the Centrelink assessment treatment — and confirm that treatment with Services Australia or a financial adviser before proceeding.
Lifetime annuities purchased before 1 July 2019 are assessed under a different set of rules and do not fall under the capital access schedule regime. For pre-2019 products, the income test typically uses a deductible amount — the return-of-capital portion of each payment, calculated at commencement — which is subtracted from the gross payment before the income test applies. This is a separate framework from the post-2019 60% gross payment approach. If you hold a pre-2019 lifetime annuity, its treatment is governed by the rules that were in place when it commenced.
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Key takeaways
- For lifetime income streams purchased on or after 1 July 2019 that comply with the capital access schedule, Centrelink assesses only 60% of the original purchase price as the assessable asset value until the holder's threshold day (the day before their 84th birthday), dropping to 30% after that.
- For the same compliant products, only 60% of the gross annual payment is assessed as income — the remaining 40% is treated as return of capital and excluded, which is a different mechanism from deeming.
- A product with a guaranteed minimum withdrawal benefit, guaranteed capital return feature, or similar provision allowing more capital access than the schedule permits loses all favourable treatment — it's assessed like an account-based pension instead, with the full balance counted under the assets test and deeming applied under the income test.
- Compliance is determined by product design, not product name or marketing — a retiree can buy a lifetime annuity expecting the reduced assessment and later discover an embedded feature has disqualified it, which is hard to reverse given the illiquidity or surrender costs of most lifetime annuities.
- Lifetime annuities purchased before 1 July 2019 fall under a completely different regime, using a deductible amount (the return-of-capital portion calculated at commencement) rather than the post-2019 60% gross payment approach — pre-2019 products keep the rules that applied when they commenced.
Frequently asked questions
How does Centrelink assess a compliant lifetime annuity for the assets test?
For lifetime income streams purchased on or after 1 July 2019 that comply with the capital access schedule, Centrelink assesses only 60% of the original purchase price as an assessable asset, until the day before the holder's 84th birthday. After that threshold day, only 30% of the purchase price is assessed for the remainder of the income stream.
What makes a lifetime annuity non-compliant with the capital access schedule?
A product becomes non-compliant if it includes features like a guaranteed minimum withdrawal benefit or a guaranteed capital return that allow more access to the underlying capital than the capital access schedule permits. Compliance is based on the product's actual design, not its marketing name, so two similarly marketed products can have very different Centrelink outcomes.
What happens if my lifetime annuity doesn't comply with the capital access schedule?
A non-compliant lifetime annuity loses all the favourable Centrelink treatment and is instead assessed much like an account-based pension: the full assessed value counts under the assets test, and deeming at the legislated notional rate applies under the income test, regardless of the annuity's actual payments.
Are lifetime annuities purchased before July 2019 assessed the same way?
No. Lifetime annuities purchased before 1 July 2019 are assessed under an entirely different framework and don't fall under the capital access schedule regime at all. For these older products, the income test typically applies a deductible amount — the return-of-capital portion of each payment calculated at commencement — rather than the post-2019 60% gross payment approach.