These were allocated to you as either an “annual” bonus, guaranteed to be added to your maturity value, but also “terminal bonuses,” which are only payable on death or maturity and can change as the company’s fortunes fluctuate.
Your combination of original sum assured and accrued bonuses is thus $112,000 but you would only receive $96,000 if you cashed it in before maturity, which is likely to be your 60th birthday this September.
A (largely) capital guaranteed savings program sounds attractive in these volatile times but these policies had major flaws, as did most of those old actuarially designed products.
Fees were not disclosed and sales commissions were high, usually the first one two or years’ premiums and their annual increases, while the bonuses (equivalent to dividends) were typically low, so only the company and its sales people tended to do well out of such policies, which explains why they are not sold any more.
You will be turning 60 next month. Ask your AMP adviser (named on your statement) if your maturity date is at age 60, but ask also about possible traps.
If you are not retired, the super benefit will be preserved and, while you cannot cash it, you can rollover into your Cbus account, preferable in their Cash or Conservative options in these volatile times.
There is little satisfaction in taking a benefit out of a guaranteed fund and losing some of it in a sharemarket-based fund.
Ask also how you can maximise the amount to be rolled over. For example, AMP may delay payment where inadequate notice is given for a withdrawal or switch. Also, since bonus rates are only guaranteed at May each year, you are likely to receive a reduced crediting rate for a withdrawal later during the year.
Others who have such policies but must wait many years before their maturity date, and who don’t want to cash in the policy for a greatly reduced amount from the life company, can consider selling the policy to Australian Policy Traders, the only remaining firm that maintains a secondary market.
When the assets-test limits were reduced some time ago it was painful for me, however, since my wife was still working, her super was not included as part of my assets. This will all change when she turns 66 in October, 2020 and I will lose my small part pension. I seem to recall that when the rules changed it was decided that anyone losing their part pension would be allowed to retain the Commonwealth Seniors Health Card (CSHC) and its benefits, but would lose any pension payments. Is this correct and would it apply to me? M. C.
Don’t confuse the pension income and assets tests with the CSHC income test, which doesn’t subject personal assets, nor pre-2015 allocated pensions, to deeming.
I assume you have an allocated “account-based” pension, started before January 1, 2015, and hold a pensioner concession card.
Assuming your wife’s super benefits will generate an allocated pension (and is not, say, a defined-benefit Government pension), it will be subject to the pension’s assets and income means tests.
If, in 2020, you lose the age pension and seek the CSHC, then if its income test (basically taxable incomes plus deemed income from any post-2015 allocated pension) results in a figure below the CSHC cutout level for couples – now at $87,884 a year – then you will get the card.
As an aside, only those who lost their age pension on January 1, 2017 as a result of the assets test changes, automatically received a CSHC.
I am intrigued by a recent letter in your column regarding a British couple with assets of more than $2 million in Australian and more in Britain who say, inter alia, “To compound matters, we will also be eligible for a part pension when we reach 67”. I would very much like to know how they qualify for a part pension with all those assets. B.A.
Its simple, they were referring to a UK State pension, not an Australian age pension.
The UK State pension is based on a person’s national insurance contributions over their years of work in the UK.
In Australia, the Government age pension is a non-contributory model, designed as a welfare grant paid out of Government revenue to retirees in need and hence is means tested.
The Commonwealth Government in 1945 introduced a “Social Services Contribution” to people’s pay packets and the money raised went into a “National Welfare Fund”, from which all such cash payments were to be made.
Unlike the UK, there was no connection between a person’s contributions and their entitlements, so it was simply an extra tax rather than an insurance premium and was merged into the income tax system just a few years later in 1950.
As further explanation, a woman’s State pension age in the UK reached parity with men at 65 last November and will now rise for both men and women, until it reaches 66 in October 2020 and 67 after 2026.
If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Help lines: Australian Financial Complaints Authority, 1800 931 678; Centrelink pensions 13 23 00.