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Unpacking the tricks and traps of the age pension

Most retirees are unaware of the tricks and traps of the age pension. Picture: Shutterstock
Most retirees are unaware of the tricks and traps of the age pension. Picture: Shutterstock

The age pension represents a major source of income for most retirees - yet many are unaware of the tricks and traps. It's a big topic, so in a two-part series starting here I will explain the system to you.

The pension is adjusted on a regular basis and the latest six-monthly age pension adjustments took effect from March 20, 2021.

The main changes were a slight increase in the amount of the age pension, which also lead to an increase in the cut off points for both the assets test and the income test. 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 the base level the pension reduces. For income test purposes the pension reduces by $0.50 for every additional dollar earned over the threshold, and by three dollars 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 base income threshold is $316 a fortnight for a couple and $178 fortnight for a single.

The cut-off point for a homeowner couple has gone up to $880,500 and for a single pensioner $585,750. For non-homeowners the numbers are $1,095,000 and $800,250 respectively. The income test cut-off points are now $82,898.40 per annum for a couple and $54,168.40 for a single.

How do you qualify? First, you have to be of pensionable age which depends on the date you were born. For people born between 1 January 1954 and 30 June 1955 pensionable age is 66, for people born between 1 July 1955 and 31 December 1956 it's 66.5 years and for those born on or after 1 January 1957 it is 67.

If one partner is eligible, and the other is under pensionable age, the eligible partner receives half the 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 all 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 value, not replacement value. This puts a figure of $5,000 on most people's furniture.

The income test includes items such as employment income, overseas pensions and rents received- financial assets are given a deemed income. They are deemed to be earning .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 $9,220 a year being .25 per cent for the first $88,000 ($220) and 2.25 per cent on $400,000 ($9,000).

There is a deeming calculator and an age pension calculator on my website www.noelwhittaker.com.au .

The term "financial assets" includes interest bearing deposits, shares, managed funds, and money in superannuation if the fund member has reached pensionable age, However, it does not include property. The property value less any mortgage on that property are used for the assets test, and the net rental income after expenses is used for the income test.

Noel answers your money questions

Question 

I refer to your recent column regarding a recently widowed person and the fact that, as a single person, they would lose their entitlement to the aged pension.

I have a relative in a similar predicament but, in this case, Centrelink has, on the death of her husband, treated her as a single aged pensioner for the assets test.

The value of any assets owned by her husband such as bank accounts, or an investment property half owned by her late husband have been ignored (half of it) for a period of time in assessing her eligibility under the assets test.

The difficulty I have is trying to find out from Centrelink how long they will ignore the value of his assets. Can you please help?

Answer

Centrelink tell me that if assets are owned in joint names with a deceased partner, the surviving partner is assessed as owning 50 per cent.

They continue to assess the surviving partner as owning 50 per cent of the asset until they are advised that assets have been transferred. Pensioners

can update their income and assets at any time during the bereavement period and are sent an income and asset review 16 weeks after the date of death.

A person's interest in a deceased estate is an assessable asset. However, the interest in the estate is not assessed as an asset until it's received or is able to be received.

It's a requirement that Centrelink are advised when the estate proceeds have been received or are able to be received.

Centrelink know that it can take some time to finalise an estate, therefore, it's generally accepted that a person may be unable to receive their interest for up to 12 months.

Question

I am one of those who is close to $1.6 in my superannuation accumulation phase. I am 75 and due to the fact that both my husband and myself have good pensions through our previous jobs with the Commonwealth Government I have no need to take another pension and am leaving my super in "accumulation" phase.

In case either or both of us has to go into "care" we will have $500,000 available for the bond. Am I making the right decision in leaving the money in "accumulation" phase. My taxable income is usually around $69,000 per year.

Answer 

Every investment decision has advantages and disadvantages. The advantage of having money in pension mode is that you are in a tax-free environment, but you are required to make minimum withdrawals each year which increase as a percentage of your balance as years pass.

If you have money in accumulation mode you are paying a 15 per cent flat tax on income but there is no requirement to draw money at any stage. Therefore the decision should turn on what income is being derived outside superannuation. As your taxable income is already $69,000 a year, leaving the money in accumulation makes good sense.

Question

Please explain the limits on superannuation contributions. I am 58 and my employer contributes around $80 a week and I sacrifice an additional $200 a week. That's a total of around $14,560 a year.

Does this mean I'm allowed to contribute an additional $10,440 to make up the difference between the existing contributions and the $25,000 limit or am I allowed a further $25,000 a year?

Answer 

The limit on concessional contributions from all sources is $25,000 a year so the maximum additional contribution you can make is $10,440 a year.

Keep in mind that the concessional cap is increasing to $27,500 on July 1 which will give you more room to make some additional contributions.

  • Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. Email: noel@noelwhittaker.com.au