Q I am 72, have a SMSF and commenced an Allocated Pension in July 2003. The original Purchase Price was $294,000, with a life expectancy of 19.25 years. Because the total value of our SMSF exceeds the Centrelink asset ceiling, we have assumed that we were ineligible for a Government Age Pension. Your article has raised my hopes that this may not be the case and we are applying to Centrelink; however their officers and application forms make no reference to ‘Non Assessable Portions’ (NAP).  How can we find out if any part of our Fund is an NAP?

A The Non assessable Portion (NAP) refers to the portion of an income stream that is not assessed for Centrelink Income Test Purposes. In your case the NAP will be $294,000 divided by your life expectancy at the time you established the Allocated Pension.   This factor or relevant number (RN) was 19.25 in 2003.  Therefore your exempt Income for Centrelink purposes (NAP) is $15,272. So if you withdrew $60,000 a year as a Pension payment, $44,728 would count for Income Test purposes.

If you take a lump sum withdrawal from an Allocated Pension as opposed to a Pension payment, the withdrawal will affect your NAP.  The revised NAP will be the original purchase price minus the lump Sum withdrawals (Commutations) and then divided by the RN.

Account based Pensions established after 1 January 2015 will not have a NAP and the entire amount will be deemed to have earned income the same way as non-pension assets are currently assessed.

Unfortunately in your case you are correct, Centrelink apply 2 tests to determine entitlements to the Age Pension for those of Pension Age.  They are the Assets Test and the Income Test.  Whichever test produces the least amount of Age Pension, is the test that applies.  In your case, regardless of your Income Test Assessment, if you exceed the Asset Test limit of $1,145,000 as a home owner couple or $1,292,000 for non-homeowners, then you will not qualify to receive the Age Pension.

So you do have a NAP, unfortunately it wont assist you in securing the Age Pension due to the assets of your SMSF.

Follow Andrew on Twitter @AndrewHeavenFP.  This article was originally published in The Australian.