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Age pension essentials: what you need to know

Created On: 15/02/2022

The latest six-monthly age pension adjustments, effective March 20, have just been made.

The main changes are a slight increase in the amount of the pension, which also leads to an increase in the cut-off points for both the assets test and the income test to qualify for it.

The maximum pension for a single person is now $952.70 a fortnight and, for a couple, $718.10 a fortnight each.

Everybody is allowed a certain base level of income and assets but, once you exceed either of these amounts, the level of the pension is reduced. Income and assets test

For income-test purposes, the base income threshold is $316 a fortnight for a couple and $178 fortnight for a single. The full age pension amount is cut by 50 cents for every additional dollar earned over the threshold, and by $3 a fortnight for every $1000 of assets over the bottom limit.

The lower asset limits are $268,000 for a single pensioner and, for a couple, $401,500. Once these levels are exceeded the pension tapers until it reaches the upper cut-off point, where no pension is payable.

The cut-off point for a homeowner couple has gone up to $880,500 and for a single pensioner to $585,750. For non-homeowners, the numbers are $1,095,000 and $800,250, respectively.

The income test upper limit cut-off points are now $82,898.40 per annum for a couple and $54,168.40 for a single.

  How do you qualify?
So, how do you qualify for an age pension? First, you have to be of pensionable age, which depends on your date of birth.

For people born between January 1, 1954, and June 30, 1955, pensionable age is 66. For those born between July 1, 1955, and December 31, 1956, it is 66.5 years and for those born on or after January 1, 1957, it is age 67.

If one partner is eligible for the age pension and the other is under pensionable age, the eligible partner receives half the regular couple’s pension. For example, a 67 year old with a 59 year old partner could qualify for 50 per cent of the couple’s pension.

You are tested under both an assets and an income test and Centrelink applies the test that gives you the least pension.

Consider a homeowner couple with assessable income of $700 a fortnight and assessable assets of $740,000. Their pension under the income test would be $622.10 a fortnight each – under the assets test $210.35. Therefore, they would qualify for an age pension of $210.35 a fortnight each.

The value of your assets does not include your family home, while your chattels, such as furniture, car and boat, are valued at second-hand rates, rather than replacement value. This usually puts a figure of about $5000 on most peoples’ furniture.

The income test includes such items as employment income, overseas pensions and rents received.

Deeming rates
Financial assets are given a deemed income. They are expected to earn 0.25 per cent for the first $88,000 ($53,000 for singles), and 2.25 per cent on the balance. For example, if a couple had $488,000 of financial assets their deemed income would be $9220 a year – 0.25 per cent for the first $88,000 ($220) and 2.25 per cent on $400,000 ($9000).

The term financial assets includes interest-bearing deposits, shares, managed funds and money in superannuation – if the fund member has reached pensionable age.

Property values
However, it does not include property. The property value less any mortgage on that property are used for the assets test, and net rental income after expenses is used for the income test.

The income test is not relevant if you are asset tested. For example, a single person with assets of $540,000 and receiving a pension of $136.70 fortnight could have assessable income of $45,000 a year, including their deemed income and employment income, without affecting their pension because they would still be asset tested.

The deeming rates are a gift for people with money in high-performing superannuation funds, which have been averaging returns of about 8 per cent a year.

There is no penalty if your assets can achieve a better return than the deeming rates return.

Market-linked investments
Each year – on March 20 and September 20 – Centrelink values your market-linked investments, such as shares and managed investments, based on their latest unit prices.

These investments are also revalued when you advise of a change to your investment portfolio, or when you request a revaluation of your shares and managed investments.

If the value of your investments has fallen, there may be an increase in your pension payment. If they have increased, then your payment may go down.

The rules favour of pensioners. If the value of your portfolio rises because of market movements, you are not required to advise Centrelink of the change – it will happen automatically at the next six-monthly revaluation. However, if your portfolio falls you have the ability to notify Centrelink immediately and gain a pension benefit.

Giving away money
You can reduce your assets by giving part of your money away but should always seek professional advice before you do it.

Centrelink rules only allow gifts of $10,000 in any financial year, with a maximum of $30,000 over five years. Using these rules, a would-be pensioner could gift $10,000 before June 30 and $10,000 just after it, and so reduce their assessable assets by $20,000.

The rules are relatively simple but there is devil in the detail.

If a member of a couple has not reached pensionable age, it is prudent to keep as much superannuation as possible in “accumulation” mode in the younger person’s name because it is then except from assessment by Centrelink. However, the moment that the fund is moved from “accumulation” mode to “pension” mode, it is assessable – irrespective of the age.

Furthermore, a debt against an investment asset is not deducted from the asset value, unless a mortgage is held against the investment asset.

Investment property
It is not uncommon for people to have a large mortgage on an investment property secured by their home. In that case, Centrelink assesses the gross value of the property and does not deduct the loan.

Age pension and Centrelink rules can be complex, so it is always a good idea to seek professional help for your individual circumstances before making any major financial decisions. Spending the money now for advice could pay off in the long run.