In order to be eligible for the Age Pension individuals must satisfy the residency requirements and be at an eligible age – and this varies depending on date of birth. For men born before 1 July 1952 that age is 65. For women born between 1 January 1949 and 30 June 1952, that age is also 65, however for those women born before 1 January 1949, that age is 64.5 years. The age at which people become eligible for the age pension is already set to increase by 6 months every 2 years starting from 1 July 2017. From 1 July 2023, the qualifying age will be 67. Furthermore, the government has proposed increasing this age further to age 70 by 2035 however this legislation is yet to be passed by the Senate.

Further, the ‘Means Test’ must be satisfied in order to meet eligibility requirements. The means test involves separately assessing the level of assets held by the couple/individual (known as the ‘assets’ test) and the level of income to the couple/individual (known as the ‘income’ test). When the amounts assessed are below certain threshold amounts, an individual is entitled to a maximum pension payment rate of $22,211.80 pa ($854.30 per fortnight) or $33,488.00 pa ($1,288 per fortnight) for a couple not separated due to ill health.

Where the assessable income and/or assets held by the individual or couple are greater than the set threshold amounts, the rate of Age Pension payment tapers off up until a point where payment ceases altogether. Where income and/or assets are between the minimum and maximum threshold amounts, the part-pension payment amount is determined by separately applying Asset test and the Income Test and then relying upon the test that produces the lowest Age Pension payment.

 

Asset test

Assets considered in the asset test include real estate other than the main residence, financial investments, superannuation investments, income streams and business investments amongst others. Exempt assets include superannuation investments not in the draw down phase until reaching age pension age, some funeral bonds and some gifted assets – refer to the Centrelink website for more information.

The table below indicates the asset levels to be eligible for a full or part-pension under different family situations.

Family Situation For Maximum Age Pension Entitlement assets must be less than Level of assets at which the Age Pension part-payment will cut out
Single home-owner $202,000 $771,750
Single non-homeowner $348,500 $918,250
Couple homeowner $286,500 $1,145,500
Couple non-homeowner $433,000 $1,292,000

 

Age Pension payments are reduced by $1.50 per fortnight for every $1,000 over the limit for full age pension entitlement. So for example, if Jack (65) who is single and owns his own home has term deposits of $300,000, then his entitlement will be reduced by (300,000-202,000) x $1.50 / $1,000 = $147 per fortnight off the full age pension.

Under the Assets Test he would receive a pension of $18,389.80 pa (854.30-147). Nevertheless, if the Income Test results in a lower pension amount, then that lower amount will be payable.

 

Income Test

Income that is assessed under the Income Test includes deemed income from financial investments, gross employment income, business income, rental income etc. Again, there are some income amounts that are exempt from the test including other government support payments, some compensation payments and some allowances – see the Centrelink website for more information.

The table below indicates the income levels to be eligible for a full or part-pension.

Family Situation For Maximum Age Pension Entitlement income must be less than Level of income at which the Age Pension part-payment will cut out
Single $4,160 pa ($160 per fortnight) $48,583.60 pa ($1868.60 f/n)
Couple $7,384 pa ($284 per fortnight) $74,360.00 pa ($2,860 f/n)

 

The full Age Pension payment amount is reduced by 50 cents for each dollar of income above the fortnightly limit for maximum age pension entitlement.

So for example, if Jack has term deposits of $300,000, the deeming rate is 2% up to $48,000 in assets, then 3.5% above this level, per annum. Jack therefore is deemed to earn income of $48,000 x 2% + (300,000 – 48,000) x 3.5%  = $9,780 pa ($376.15 per fortnight).

Under the income test he loses $0.50 per fortnight for every dollar over $160 per fortnight. This equates to a ($376.15 – $160) x 0.50 = $108.05 per fortnight reduction off the full age pension.

Under the Income Test he would receive a pension of $19,402.50 (854.30-108.05*26).

Final age pension entitlement is the minimum of the asset test and income test entitlement. Given that the lowest entitlement is under the asset test in this case, Jack will receive a part-pension of $18,389.80 this year.

 

 

The information in this document is factual information only and is not intended to be financial product advice or legal advice and should not be relied upon as such. The information is general in nature and may omit detail that could be significant to your particular circumstances.  While all care has been taken to ensure the information is correct at the time of publishing, superannuation and tax legislation can change from time to time and Star Super Services Pty Ltd and Star Super Advice Pty Ltd is not liable for any loss arising from reliance on this information, including reliance on information that is no longer current. Tax is only one consideration when making a financial decision. We recommend that you seek appropriate professional advice before making any financial decisions.