Age Pension myths busted

This past week, a casual conversation with adviser, Megan Marshal, totally nailed the difficulty of managing retirement income. 

‘Understanding the rules is the hardest thing for most people’, Megan said, ‘Particularly making connections between the Australian Tax Office, Centrelink and superannuation. All the rules are so intertwined, it makes it close to impossible to understand what to do unless you work in financial services’.

We agree. But the good news is that we take all our members’ feedback onboard and use it to create plain English explanations of all aspects of retirement income. This benefits members in two ways. Firstly it gives you the detail that you need to better understand your options and when to use them. And secondly, we subscribe to the belief that knowledge is power, so in sharing these frequent explainers, we hope to increase your confidence in your own decision-making powers.

Today we tackle one of the commonest Age Pension myths – that where you start is about where you’ll end up. This is not usually the truth. And here’s why.

Most people will qualify for a full or part Age Pension at age 67. Recent data from the Department of Treasury suggests that two thirds (67%) of Australians start retirement with this valuable government benefit. To become eligible, you will need to pass the means test which has a limit for both income and for assets. You will also need to be a resident and to have reached age 67.

But over time, your situation is likely to change dramatically

Most older Australians now retire with at least some superannuation savings. Typically they will draw down this super in a retirement income stream and thus reduce these savings, i.e. their assets. As the lower balance is noted by Centrelink, so the retiree on a part pension will be entitled to a higher fortnightly payment. 

Eligibility also widens

The data shows us that the 67% of people receiving an Age Pension in their late 60s will increase to 80% of people who are in their 80s. So the vast majority of those aged 80-90 will receive an Age Pension and many will have ‘graduated’ from a part Age Pension to a full one. 

Indexation delivers more

There’s one other way that the payment you ‘end up’ with is higher, and that is because of the legislated adjustments to the Age Pension which occur twice a year, in March and September. This is when the Age Pension is indexed in line with Consumer Price Index (CPI) increases as well as the  Pensioner Beneficiary Living Cost Index (PBLCI) and the Male Total Average Weekly Earnings (MTAWE)

In addition to increases in the base rate of the pension, adjustments are also usually made to the pension supplement. The Income test and Asset test limits are usually increased as well. This ensures that payments to older Australians stay in touch with both prices and salaries. This system works well. In 2023, for instance, the fortnightly rate of the Age Pension (including supplements)  increased by $32.70 (singles) and $24.70 (couples) in September and $37.50 (singles) and $28.20 (couples) in March. It’s useful to bear this six-monthly indexation in mind when planning your retirement income, as the amount you are likely to receive in 10 or 20 years’ time could be far higher than you think. (All Retirement Essentials calculators, including the Safe Spending Simulator, make adjustments for such increases so that all projections are as accurate as possible).

As Megan noted, it’s difficult to be across all the rules. But understanding how the Age Pension works, and how it is likely to become a bigger part of your income as you age, is a great start. 

Many retirees are underpaid in retirement.

Make sure you’re not one of them! 

It’s often a misunderstanding of the rules that can lead to incorrect Centrelink assessments and lower fortnightly payments. It’s more than worth the time and money to check that you have maximised all of your entitlements so you know you are receiving the maximum possible income.

Our Maximising your Entitlements consultation is designed to help you do just that. 

And those who are in doubt as to if or when they might become entitled to an Age Pension can check your eligibility for free with our Age Pension Entitlements Calculator.

Were you aware of the three ways that the Age Pension can increase over time? Are there any other aspects of this income stream that you feel are under the radar? Please let us know so we can write about those too. Or maybe there is some part of the Age Pension entitlements process that continues to confuse?