Q I will soon be eligible to apply for a part Age Pension. Can you explain how Centrelink treat my Superannuation savings, both as an asset and income. Before retirement I shall change my Superannuation account from accumulation to pension.
A You are currently eligible to receive the Age Pension if you are male and age 65 or female and age 64.5. Men or women born on or after 1 July 1952 will have an older qualifying age. If you were born 1 January 1957 onwards, you will not qualify for the Age Pension until age 67.
Your Age Pension entitlement is subject to means testing. There are two components of the means testing; an Asset Test and an Income Test. Centrelink calculates your Age Pension on the test that generates the lowest eligible pension amount.
Under the Assets test, if you are Age Pension age, all of your assets are counted at current market value, including Superannuation. Your family home that you reside in is exempt.
The Asset test reduces your Age Pension by $1.50 per fortnight for each $1,000 that the Assessed Value of your assets exceeds the threshold. A single home owner may have assets valued at $192,500 before the Asset Test applies. A single non home owner may have assets valued at $332,000. For a home owner couple, the threshold is $265,000 before the Asset Test applies. Non home owner couples may have Assets valued at $412,500.
Under the Income test, Government Pensions, Defined Benefit Pensions, distributions from Trusts and Private Companies, rental income and wages earned from work are counted to calculate your Assessed Income.
Income from financial investments is deemed to earn a rate of return regardless of what the actual amount received is. If you are single, the first $45,400 of investment assets is deemed to earn 3% and thereafter 4.5%. For a couple, the threshold is $75,600. The deemed amount is included to calculate the Assessed Income.
Income received from account based pensions such as Allocated Pensions is more complicated. The account balance at the commencement of the pension is divided by the life expectancy of the recipient. This amount is referred to as the Deduction Amount and is exempt from Income Test. The Deduction Amount does not change for the life of the investment unless you withdraw lump sums. Income drawn above the Deduction amount is counted towards the Income Test. Please note that this has nothing to do with the Deductible amount as applied to taxable income by the ATO.
For a single person, the Income Test reduces the Age Pension by 50 cents per fortnight for each dollar of Assessed Income over $152 per fortnight. Couples can have $268 per fortnight of Assessed Income then the Income Test reduces each person’s Age Pension by 25 cents per fortnight for each additional dollar of combined Assessed Income of the couple.
In summary, as you are Age Pension age, all your Superannuation will be counted for Asset Test purposes. How your structure your Super into retirement will affect how it is treated for Income test purposes. I strongly encourage you to get proper advice to maximize your entitlements and avoid common pitfalls.