Topic six: Centrelink including the age pension

Many retirees look to get income from a number of sources including from their super fund and outside assets and income. Many might also be hopeful to supplement their income with government support through Centrelink payments like the age pension. The age pension is designed as a safety net for retirees to help meet the basic cost of living for those that need it most so payments made by Centrelink are subject to eligibility. In this topic I talk through the type of payments that are available and what sort of eligibility requirements there may be.

Notes:

Who can get Age Pension - Age Pension - Services Australia

Online estimators - Accessing our services - Services Australia

Commonwealth Seniors Health Card - Services Australia

Getting a payment if you’re a carer - Caring for someone - Services Australia

Action Plan:

1)       Visit the Centrelink website to check eligibility requirements and potentially use their Payment Finder to help with this or contact a Financial Services Information Officer (FISO) if you believe you may be immediately eligible.

2) If accessing the government age pension is a high priority for you consider getting financial advice to help with assessing if your assets and income are structure to maximise your chances of becoming eligible.

Transcript

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SPEAKER_00 0:01

Hello and welcome to our sixth topic. Today I am going to be talking about centrelink payments, including the big one, the aged pension, which is something that I know that everybody would like to have access to if they could. And I'm going to help you understand what other types of government support there might be in terms of centrelink payments that could help you with funding your retirement. So the aged pension is designed as a safety net for retirees. It really is only there to help meet the basic cost of living, and we hear a lot in the media about how tough it is just to live on the aged pension, and we'll talk through why that can be a problem when it comes to determining your retirement income, which we're going to do in the next topic. But a lot of retirees will look to get their income from a number of sources. So the primary one might be from Super through something like that retirement income account that we talked about in topic four. It could be from some of those other investments we talked about in the last topic, and then the last one in the mix is can I get a little bit of government support from age pension just to top it up? So when it comes to centre link support, including the age pension, but all centre link payments, the first and most important principle to understand is that eligibility is based on both assets and income that is held or generated at a household level. So that means if you have a partner, their assets and income are going to be taken into account when looking at your eligibility. The intent is that it will only be paid to the people who need it the most. The second thing to understand with the age pension is that the universal age for eligibility is currently 67 and it is likely to keep increasing from there. So people retiring earlier than this age will need an alternative source of income to fill this gap in time. So we talked about those very confusing ages in the retirement income account topic: 60 access to super, 65 unlimited access to super, 67 age pension. So how do you start working out if you'll be eligible for an age pension now or potentially in the future? So there are two tests, as I said, that apply assets and income, and both must be met before you become eligible for centrelink support. There are some rare exceptions. The limits used in these tests can change regularly, but also your circumstances can mean that your eligibility changes as well. It's really important to keep looking at what those limits are and keep coming back, revisiting it, and updating information if you are eligible. So it's not a single point in time. Things could really change. The assets test is looking at how much you own in assets that could be used to fund your retirement income. It makes the assumption that you can use them for this purpose, and it's not based on whether or not you're actually using them. By way of example for that, people who own a farm, it can be really difficult if you're not generating farm income, you're not using all of the farm as an income-producing asset, but you will still be assessed on the value of the whole farm. So, assets your own home is exempt from the assets test, and that is simply because generally people don't use that to fund their retirement income. If you do use a part of the home to rent it out, a granny flat or something like that, then obviously that will come into these tests. There are different limits as a result for homeowners and non-homeowners in recognition that you need to have higher assets to generate income to pay for housing in rent if you don't own your own home. Assets include things like obviously superannuation, property you aren't living in, or property that you you might be using to generate income, things like holiday homes, acreages, as I've said with farms, obviously things like shares, cash, fixed interest, all sorts of other investments. But this is one that people aren't fully aware of sometimes, and that is that it also includes personal assets. So things like household contents, cars, boats, caravans, even things like collectibles, like jewellery and artwork, you know, cash, coins, stamps, anything that you could sell to produce an income to fund your retirement. Sometimes an asset value might be able to be reduced by a debt that you hold that's directly associated to that asset, and that's recognition that not all of the asset might be available to you personally as it needs to be repaid to a bank or other lender. And there are strict conditions about this debt, so you really need to understand that just having a loan on a property may not mean that it's deducted from that asset value, depending on how the loan was set up. This is another one that's really important. Sometimes an asset may also be considered a deprived asset, and this might be the result of where you have gifted or given an asset to another person which reduces your asset values in the five years leading up to applying and becoming eligible for the age pension. If this is the case, Centerlink might say, We're going to treat these assets as if you still own them for a period of up to five years, and that's simply because those it will be deemed that those assets could have been available for your use to fund your retirement income and could have meant that you didn't have eligibility to the age pension. Generally, when you apply for the age pension, you have to make a starting declaration of the assets value, and then, of course, you need to make an ongoing declaration of asset values. Sometimes there are standard values that Centerlink says you must use. You know, they're keen to make sure that people don't make up their own values to suit their circumstances. Other times you will have to go out and determine that value, and there'll be some guidance on how to do that with properties. It might mean, say, involving a valuer in the property. What you don't want to do is make up values because asset values are traceable by Centrelink because of their links with other government agencies. So registers such as titles offices, regulated funds or managed investments that have to report to the ATO, share holdings through share registries have to report to the ATO. They can look at past tax returns, and there are penalties for not making accurate declaration of assets, either that you hold to start with or their value. And getting that together right might really take some time to get all the information. It's incredibly detailed what you have to put together if you you have a less than simple situation, and that's where thinking about getting that well ahead of the time that you want to apply for the age pension is a good thing to do. Now, talking about income, that is all sources. So the obvious ones salary, self-employed or contract wages, profits that you might receive as a business owner, all types of investment income, distributions from trusts, private or government pensions, so that are held outside of super, and that's usually like a corporate, a legacy corporate or government pension, something that might be called a lifetime or a defined pension. Generally anything that could or does generate income that you need to declare on your tax return. Sometimes the income rate is set by centrelink, and this is called deeming. So this is how superannuation income is assessed. It's not based on your real rate of withdrawals. But on the positive side, often deeming is a more favorable treatment than what you're really receiving. Except, like I said, if funds are held in assets that pay no income. There are set rates for deeming, they will be made clear to you when you start applying for the age pension. And often, if you're a retail super fund, they'll assist with that. A centerlink report that you can use for that purpose as well. Now I've put tables in the links that show the current asset and income test limits. It's going to be a little confusing to read them all out, so I'll just give you a very high-level idea of what kind of ranges there are, depending on whether you're a homeowner or a non-homeowner for assets. So for the assets, they're looking at whether you are a single person or a couple, and I'll talk about that in a little in a little while. A single person to give you an idea, the bottom end where you would receive the full pension currently is around $320,000 in assets. The cutoff point where you would stop receiving any pension, so there'll be a sliding scale in between, is around the $715,000 mark. Now, for couples, these are homeowners, it's it's under $480,000 of assets. You should be able to receive the full-age pension. Over a million, it's it's got to cut out. Now, non-homeowners get a little bit more, like I said, in recognition that they need more assets to generate income to pay rents. So for a single, that range is more like $580,000, cutting out all together once you own more than $970,000 in assets. For a couple, it's around $740,000, cutting out at about $1.3 million before you'd receive any age pension. Now, on top of that, first you've got to pass that assets test, then you've also got to pass the income test before it starts affecting your pension. So for a single person, you can earn up to currently around $5,600 a year before it starts affecting a full-age pension, and for a couple that increases to about $9,900 on current limits. What happens is for every dollar you earn over those levels, um, it reduces by for singles 50 cents in every dollar, reduces the age pension, and it cuts out all together at about $2,500 per fortnight of income, and then for a couple it reduces by 25 cents for every dollar up to about $3,900 you can earn per fortnight. And the difficulty with the income one is where you might only earn income for a part period, and Centrelink's going to make an adjustment for that. So if you were only doing a contract for a period of time, you're going to need to declare that, otherwise, Centerlink is going to assess it that that's the ongoing income you're receiving. The requirement to pass both tests can be really challenging for people who, as I said in the last topic, are asset rich, i.e., they own a large property but are receiving very little income because the asset test is going to knock them out, even though they're well below on the income test. And that's why really looking at the assets you own and the income you're going to receive, you're going to be deemed to receive going into retirement is really important to get some guidance on that from a financial advisor. The focus needs to be in retirement on producing income to support you and looking at how your assets are doing that, how that might change when you get to retirement. Now there are complex rules around being part of a couple. Centrelink is quite definitive about what circumstances would you mean you would be considered a couple and being legally recognized as a couple and whether you're living together, you know, are some of those measures. But then there are other measures, and um, so really being a couple but keeping separate addresses might not work for the way that Centrelink assesses it. Um, so you will need to understand that because the single rates are higher than the couple rate per person, and that's the reason why it becomes important to understand whether you're going to be deemed a couple. Now, couples who are genuinely forced to live separately due to ill health, one member might need to be in an aged care or other health institution because of that. There are provisions so that payments can be made to reflect those circumstances, recognising that they don't then have the opportunity to split bills that couples that are sharing their finances and living together might be able to. One thing that couples might need to consider is where there's a big age gap. So the older person who may want to retire in their 60s or that age 67, but has a younger partner, say in their 50s, there might be an impact for eligibility for the age pension because remember, Centrelink is going to look at the assets and income of both. So one of the factors that could be important in these circumstances is that superannuation gets a different treatment by centrelink. So under age pension age, Centrelink doesn't assess super that's held in an accumulation account, recognising that that is not may not be available for access given age limits or working situations. So accumulation accounts go unassessed for asset and income. Once you reach age pension age, regardless of how the superannuation is held, it's assessed. But under age pension age, keeping an accumulation exempt, converting it to a retirement income account makes it accessible to Centrelink, and this is where getting advice as a couple before going ahead and starting retirement income accounts in both names, might be worth doing if there's an age gap, it could affect eligibility for age pension. Now the government age pension is only available to Australian residents, like all Centrelink payments. Assets and income are based on what you own or earn in Australia, but can include and generally include those that are held outside of Australia. So if you're entitled to a pension from another country, whether it's private or government, this doesn't necessarily mean you won't get an Australian age pension, but it will be counted in those income and asset tests. So also if you want to receive the age pension while residing in another country, there are special rules around this. You need to talk to CentreLink to determine all of these circumstances rather than just thinking I can move to Bali where the cost of living is lower and I'll continue to get my age pension. There is a really useful tool for estimating how much age pension you might be entitled to on the Centrelink website. It's called the Payment Finder, and I will put a link in the notes for you to have a play with this. It might help you understand by running different scenarios through changing the value and the different mix of assets and income as to what it might do in terms of your age pension eligibility. Also, Centerlink has what are called Financial Services Information Offices or FISOs that you can make an appointment with to help them understand your circumstances better and give some guidance as to how that impacts age pension eligibility. But I'm going to caution here while we all want to do a bit of retirement planning, age pension eligibility and the amount you receive is subject to change. So doing it too far in advance may not be useful. You might want to look at that payment finder to get a bit of an idea, but you really need to wait until you're closer to being eligible in age or the asset income limits before trying to get an exact idea. So going into centering will often get you turned away and trying to make an appointment with a FISO when you're 63, for example, isn't um isn't going to work. So just bear that in mind. You don't want to leave it too late because as you're approaching age 67 or when you're you believe your assets and income may make you eligible. You do want to understand what sort of documentation is needed, and as I said before, it can take some time to put together. You probably want to start putting your application together about three months before you're eligible because there are no back payments of centrelinkal entitlements, so it's as it's when it's accepted, the age pension starts being paid after that. So doing some planning ahead of time is good if you if you want to rely on those age pension payments. Now, a couple of other centre link payments I'll mention. The first is a job seeker allowance. Now, this might be something that could help you if you're over 60 but under age pension age of 67. You may be able to receive a job seeker payment by performing volunteer duties instead of looking for a job. This is in recognition that it can be really hard to find a job for older Australians. It might be that alternative way to meet eligibility requirements. You are still going to be subject to the asset and income test for this one, though. And the other thing to note is if you do get job seeker, it is quite a bit lower than the age pension payment, but might help some circumstances. Now, another one that could be helpful for retirees, particularly those that have health concerns, is the Commonwealth Senior's healthcare card. The advantage of this one you still have to be age pension age, so 67 years or older, you need to be an Australian resident. But the test for this card is based on income alone and not assets. So that might help when I was talking before about being asset rich and income poor. And the income test is quite a bit higher than the age pension, it is based on adjusted taxable income and any deemed income from income streams like your retirement income accounts. And the current requirement is around $101,000 a year, is where it would cut out, and $161 to $62,000 a year for couples. So that's quite a decent level, which might mean that you're eligible for this one, even though you're not eligible for age pension. It could be a little bit complicated to work out if your adjusted taxable income, you know, you need to know your deductions, capital gains, income from multiple sources, any lump sum benefits you receive, you probably need to talk to your tax agent or accountant to get a handle on what your adjusted taxable income is. And once again, you can you can look to your super for a centrelink statement. But if you do qualify for this card, some of the benefits that you could receive are those discounted pharmaceuticals under the PBS scheme, bulk billing of medical services and the Medicare safety net for excess health costs. So that's one definitely worth looking into, and I'll put a link in the notes to more details on that one. Now the last one that I'm going to mention is for where either a person or their partner, so in that couple situation, actually it can include other family members as well, have an illness or injury that might make them eligible either for a disability support pension and/or some form of carer's payment to the person looking after them. So there is a safety net provided by Centerlink in the disability support pension. The eligibility, apart from a serious health condition, obviously, is the same income and assets test that you see for the age pension, but it's available to people under the age of 67. I won't talk too much about it, except to say in retirement, what's important is that at age 67 you automatically transfer over to the age pension when you're on a disability support. What might be of interest to some people is that where you need to provide caring support to a person, either like I said, your spouse or another, potentially another family member, which means that it affects your ability to go out and earn income to support yourself in that lead up to retirement. This isn't unusual. As older people suffer some ill health, the spouse might have to stop working full-time to help out. There is a safety net here in the form of a carer's pension and a carer's allowance, and the eligibility to receive either of these is means tested again. So you know you're looking at assets and income. It is designed to help out where you've lost income and andor supplement other sources of income that might have been reduced due to being a carer. There is quite a lot of criteria to meet. I'm going to put the link in to help you understand that. It's just to let you know that there could be another form of payment you could receive before age pension age. Now I've gone a lot, gone into a lot of detail on this topic, and like I said, the thing with Centrelink is it's so subject to change. You really need to go and check out all those limits and all those rules by looking at the links that I provide. But it is going to be helpful in our next topic when we talk about calculating a retirement income to understand where the age pension andor any other centrelink payment might help you to get to that desired level of income. So obviously, the action plan here is to visit the CentreLink website, look at the payment finder. If you're immediately eligible for an aged pension and you feel like you need some help, go and visit a FISO. And you know, if you need some help understanding what, if any, there are options for your existing assets and income to help with your age pension eligibility, go and seek some financial advice. So the big one next topic how to work out your retirement income needs. Topic seven, I'll look forward to talking to you then.