Does a retirement income stream offer any social security benefits?

Most investments are subject to means testing arrangements for social security pensions and allowances and Veterans' Affairs pensions.

Retirement income streams are no different - they are subject to means testing. However, they have their own specific rules for both the income and assets tests, and in many cases receive favourable treatment.

For the income test, special rules are applied to most income streams because the income stream payments you receive will generally include a return of part of your capital. So there needs to be a way of working out which part is income and which is your capital. Generally, for the income test, it is only the income part which is counted under the income test.

For the assets test, all income streams are counted in some way except one category which receives a partial assets test exemption. As a general rule, only those income streams where your capital cannot be accessed receive a partial exemption from the assets test.

To increase further the incentives to save for retirement, the Government has halved the pension assets test taper rate to $1.50 per fortnight, effective from 20 September 2007. The 50 per cent assets test exemption for complying income streams purchased on or after 20 September 2007 will be removed to coincide with the reduction in the assets test taper rate.