Grandfathered or Deemed?

21 June 2022
| By Industry |
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On 1 January, 2015, the income test assessment of account-based pensions changed for income support payments and also for the Commonwealth Seniors Health Card (CSHC).

Account-based pensions commenced on or after 1 January, 2015 are deemed for income test purposes for both, income support payments and CSHC assessment. Account-based pensions established prior to 1 January, 2015 may be grandfathered if certain requirements are met. 

For income support payments, account-based pensions are classed as grandfathered if all of the following requirements are met:

  • The account-based pension commenced before 1 January, 2015, and
  • The account holder was in receipt of an eligible income support payment immediately prior to 1 January, 2015, and
  • The account holder has been in continuous receipt of an income support payment since that time. 

For CSHC assessment, account-based pensions are grandfathered if all of the following requirements are met:

  • The account-based pension commenced before 1 January, 2015, and
  • The account holder held the CSHC immediately prior to 1 January, 2015, and
  • The account holder continuously held the card since that time. 

What is the income test assessment of grandfathered pensions? 

For income support payments, the ‘deductible amount’ calculations are applied. The deductible amount represents a return of capital from the original purchase price and reduces the assessable income drawn from the pension. The following formula is used to determine the assessable income:

Assessable income = income payments less deductible amount


Deductible amount = (Purchase price less Commutations)/Relevant number 

Advisers can obtain the relevant information from the Centrelink Schedule provided by the product. 

For the CSHC, grandfathered account-based pensions are exempt from the assessment. This is because the income test for CSHC is based on adjusted taxable income and with pension payments being tax free to individuals aged 60 and above, $0 is assessed from a grandfathered pension. 

Which payments are eligible income support payments for this purpose? 

The most-common eligible income support payments for this purpose include:

  • Age Pension
  • Disability support pension 
  • DVA Service pension
  • Carer payment 

It is worth mentioning that when the pensioner moves from one eligible income support payment to another, the grandfathering is not impacted if the income support is not interrupted. 

For example, if the individual has been in receipt of a disability support pension since 2014 and has recently moved to an age pension with no interruptions, the grandfathered account-based pension will remain unchanged. 

Is it important to retain grandfathered pensions? 

With these changes being in force for some seven years now, and also with deeming rates being so low lately, a question arises whether it is important to retain grandfathered pensions?

Is the client trapped in an existing grandfathered pension that may now be a legacy product or may be less cost-effective when compared to other products available in the market or maybe providing limited investment options? There could be several valid reasons for advisers wanting to provide a recommendation that may lead to loss of grandfathering. 

Can the client benefit from losing grandfathered provisions and instead, being assessed under the deeming rules? 

The short answer is it would depend on the clients’ circumstances. 

In some cases, the client may be better off losing grandfathered provisions and being assessed under deeming rules. For example, if the client has a grandfathered account-based pension but over the years they have made lump sum withdrawals (also known as commutations) from the pension in addition to regular pension payments. These lump sum commutations would have reduced the deductible amount of the pension and therefore, increased the assessable income for income support payment purposes. If assessed under the deeming rules, these clients may be able to increase the rate of their income support payment. 

Financial advisers will be able to determine the appropriateness of retaining grandfathered pensions by completing an assessment based on clients’ circumstances as demonstrated in the case study below. 

Case study

Phillip is a single homeowner claiming the Age Pension. 

Phillip has $20,000 held in the bank account, $20,000 of personal assets, and an account-based pension valued at $200,000. Phillip is drawing $20,000 each year from the account-based pension to support his lifestyle. The account-based pension is grandfathered and has a deductible amount of $10,000. 

The current pension product is a legacy product that has higher than average ongoing investment and management costs and only offers a limited number of investment options. Phillip’s financial adviser is considering rolling his existing pension to another product where ongoing fees are expected to be considerably lower and the proposed product offers more investment options and better features. Phillip’s adviser is aware that the recommendation to change products will trigger the loss of grandfathered assessment and the new pension will be deemed. The adviser is concerned that the recommendation may negatively impact the client, Phillip. 

However, after doing the numbers, it would appear that Phillip is not going to be negatively impacted if he changes products. In fact, Phillip will be better off changing products as he will benefit from lower ongoing product costs, will have more investment options and features to choose from, and more importantly, the rate of his age pension will increase by approximately $103 per fortnight as demonstrated in Table 1. 

The above calculations are based on rates and thresholds current as at June 2022. 

Is the client's income support determined by the assets test? 

The rate of clients’ income support payments may be determined by the assets test (not the income test). 

In these situations, especially when the combined value of assets is leaning more towards the upper threshold of the assets test, losing grandfathered provisions will not have a short-term negative impact on the rate of their income support payment. Depending on the amount of capital drawdowns, the client may be assessed under the assets test for some time before their income support payment is determined by the income test. 

Doing the numbers and having an open conversation with your clients (e.g. pros and cons short term and long term, what is more important to them) may determine the appropriateness of advice. 


Common strategies that may lead to loss of grandfathering include:

  • Changing pension products; 
  • Combining existing pension and accumulation accounts to restart a new pension;
  • Consolidating multiple pensions into one;
  • Following the death of a member with a non-reversionary nomination, surviving spouse opting to commence a death benefit income stream;
  • Adding or removing a reversionary death benefit nomination. This may vary from one product to another. Some products are able to implement this change without stopping or starting an existing pension. Others may need to stop the current pension and restart. It is always best practice to check with the product provider. 
  • Winding up an SMSF and rolling existing pension into a non-SMSF account-based pension; 
  • Loss of income support payment or loss of CSHC.  


In situations where the client is either in receipt of aged care or home care services or is likely to access these services, losing grandfathered assessment may also impact fees paid for these services. This is because fees for home care and certain fees for aged care are determined by the income test. The loss of grandfathered assessment may inadvertently increase the cost of their care.  


When a holder of CSHC becomes eligible to access the Age pension, the grandfathering of their account-based pension will not be applied to Age pension assessment. This is because the person hasn’t been in continuous receipt of income support payment since 1 January, 2015. Their existing account-based pension will now be deemed when determining the rate of the Age Pension. This may occur when they previously had an excessive level of assessable assets and as such, did not qualify for the age pension. However, over time their assessable assets have gradually reduced, and they now qualify.

Similarly, if the person in receipt of the Age pension is no longer eligible for the Age pension and wishes to apply for the CSHC, the account-based pension that may have been grandfathered for age pension assessment will not be grandfathered for CSHC. The account-based pension will be deemed for the income test assessment of CSHC. This may occur when their income or assets have increased as a result of a recent inheritance for example or when a member of a couple dies and the surviving spouse is now being assessed as a single person. 


While grandfathered account-based pensions may be important or beneficial to some clients, others may not have compelling reasons to retain their grandfathered pension. An individual assessment should be completed based on the client’s personal circumstances, objectives, and needs, including future aged care needs. A potential future increase in deeming rates also should be taken into consideration as these rates have been historically low in the past few years.  

Anna Mirzoyan is technical and compliance officer at Lifespan Financial Planning.

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