A catch when switching super funds

With all the talk recently about underperforming retail superannuation funds, you could be tempted to switch to a better performing fund. However, there can be a catch.

CPSA was contacted by someone who had switched to a better performing fund, only to find that their Age Pension payment had gone down substantially. Their question: how come?

Same balance, so no change in the asset test.

Better returns, so more income, but income from super is generally speaking deemed.

What could the reason be?

People applying for the Age Pension must satisfy an income test and an assets test to be eligible for a full or part Age Pension. Before 1 January 2015, anyone receiving the Age Pension was eligible for a deduction amount on their superannuation pension. This amount was deducted from the assessable income for the Age Pension income test.

However, anyone starting a superannuation pension on or after 1 January 2015 is not eligible for a deduction amount against the income test. Instead, the entire superannuation pension is subject to the deeming rules.

If you were on the Age Pension before 1 January 2015 and were drawing a superannuation pension as well, and then you switched to a new super fund after 1 January 2015, you don’t qualify for a deduction amount anymore. The full balance is deemed for the income test. This results in a reduction of the fortnightly pension payment.

So, if you were thinking of switching super funds, think carefully and ask questions before you do. You may need to decide if the higher return from your new super fund outstrips the benefit of a deduction amount you have in your old fund.