This article should be read in conjunction with the Social Security update provided in our Federal Budget Summary.

While the thought of looking at the value of your wealth may not appeal in the current environment, there may be significant benefit in doing so. Why? The Centrelink Age Pension.

With the recent market correction now is the perfect time to conduct a self check of your current worth.  This is because where you were not previously eligible for the age pension, you may now be, or if you are currently receiving a part pension, you may now be eligible for more. Even if you are eligible for only a very small pension it will still entitle you to the Pensioner’s concession card, which in itself provides benefits. To help get you started, and to highlight the potential opportunities available to you, below we have outlined  a summary
of how Centrelink’s age pension operates.

In order to qualify for the age pension you must first satisfy the age and residence test. There is then a means test applied and depending on your income and asset position, Centrelink will determine how much, if any, age pension is payable.

If you are a male you may be eligible for the age pension if you are over age 65. For women, the pension age is slowly being increased to age 65, however depending on your year of birth you may be eligible from the age of 60. Please note that as outlined in our Budget Summary, the qualifying age for the age pension is being increased to 67 years of age by 2023, in line with the Government’s desire to manage future age pension liabilities. To qualify for residency you will either need to be: an Australian citizen; a holder of permanent resident visa; or a New Zealand citizen who was in Australian on 26 February 2001 or for 12 months in the two years immediately before that date, or was assessed as protected before 26 February 2004. To be paid the age pension you need to meet the ten year residency requirements unless you fall into one of the special exceptions. Once you have satisfied the age and residency requirements, Centrelink will conduct both the asset and income test to determine your rate of payment. The test that results in the lower rate (or nil rate) is the one that applies to you.

Asset Test*

The asset test collates assessable assets to determine whether the value falls within the asset test thresholds. Common assets included in the asset test are: financial investments (cash, shares, managed investments etc), real estate (holiday/investment properties); any assets held in superannuation and rollover funds where you are of age pension age; and personal assets such as home  contents and motor vehicles. These assets are generally assessed at their market value, less any debts or encumbrances secured against the asset.

Importantly, your principal home is not included in the asset test, along with other assets such as: superannuation for people under age pension age; a life interest not created by you or your partner; up to two funeral investments/bonds that cost no more than $10,250 per person or couple. In addition, complying income streams such as life time and life expectancy may be treated as fully or partially exempt from the assets test depending on the characteristics of the income stream and the date of purchase.

A single pensioner is eligible to receive the full payment rate of $575.80 per fortnight, or a couple, $957.80 combined per fortnight (including the pharmaceutical allowance) if the value of their assets is less than the lower threshold. This payment will reduce by $1.50 per fortnight for every $1,000 of asset over the lower threshold, and cuts out completely where the value of your assets exceed the upper threshold.  Figure 3 indicates the current lower and upper thresholds for both singles and couple.


Income test*

While the asset test is quite straightforward, the income test has several elements. The income test assesses income received including, salary, rental income, income streams, net income from businesses etc) as well as the ‘deemed’ income from financial investments (cash, shares, managed investments etc). Deeming assumes that financial investments are earning a certain rate of income, regardless of what income they are actually earning. Figure 4 provides the current deeming rates.


When dealing with income streams such as pensions (account based pensions) and annuities, the assessable income is generally based on the actual income received less a deductible (exempt) amount. The deductible amount is determined by dividing the original purchase price by the relevant number (term of the income stream or life expectancy) and then subtracting this from your annual pension payment. This formula has a favourable outcome in terms of what pension income is assessed for the purpose of the income test.

Under the income test, a single pensioner is eligible to receive the full payment rate of $575.80 per fortnight, or a couple, $957.80 combined per fortnight (including the pharmaceutical allowance) if their income is under the lower threshold. Fortnightly income over the lower threshold will reduce the pension entitlement by 40 cents in every dollar and 20 cents in the dollar each for members of a couple, and cut out completely when assessable income is over the upper threshold. From 20 September 2009, the income test taper rate will increase from 40 to 50 cents in the dollar for a single pensioner and from 20 to 25 cents for each member of a couple, for income above the relevant income free threshold. Please see our Budget Summary for details. Figure 5 indicates the income test thresholds for singles and couples.

Assessment

Having collated all the necessary income and asset information from you, Centrelink will conduct both the asset and income test to determine your age pension entitlement.
The test which results in the lower payment rate will be the test that applies. This means that if you fail to satisfy one of the tests, either the asset or income test, then you will be ineligible for the age pension. However, this should not put you off.

A quick exercise of thinking about what your current asset and income position could prove incredibly valuable. As the tables indicate the upper thresholds for both the asset and income tests are quite generous. A couple who own their home can have assessable assets up to $882,500 before they are ineligible and their combined income can be as much as $68,000 per annum currently, reducing to $56,000 from 20 September 2009.

A single homeowner on the other hand can have assessable assets of up to $555,750 and earn income of $41,000 per annum currently, reducing to $33,500 from 20 September 2009.   Remembering also that even if it is not extra income that you are after, qualifying for just $1 of age pension will entitle you to the Pensioner’s concession card, which in some instances provides the greatest
benefit through:

• access to prescription medicines at the concession rate through the Pharmaceutical Benefits Scheme (PBS)
• reduced fares on public transport
• reduction in property, water rates and  energy bills
• reduced motor vehicle registration
• other health related concessions for dental care, eye care and hearing services.
  

For more information on the age pension and other concessions available please contact Centrelink or our office.

Tara Jones
Senior Consultant
tjones@moorestephens.com.au

*Please note that the asset and income examples provided are not an exhaustive list of all those include in the asset and income test.