A tale of three retirements
With just on two thirds of retirees receiving an Age Pension from age 67 onwards, this benefit remains the main form of income for older Australians. As the super system matures, the amount of ‘top-up’ provided by super is increasing, but the core funding of retirement remains the Australian Government Age Pension.
Today we question how fair the pension actually is. It seems that the somewhat complex income and assets test which was designed to promote equity may be working against certain retirees.
Let’s start with the detail of what different groups receive, using the full Age Pension for these comparisons.
Here is the way singles and couples are treated. The full single amount is $29,754 per annum and couples will receive $44,855 combined.
Adult Pension Rates
| Single* | 20 Sep 2024 |
| Base | $1,047.10 pf |
| Supplement | $83.20 pf |
| Energy Supplement | $14.10 pf |
| Total | $1,144.40 pf |
| Partnered (each) | |
| Base | $789.30 pf |
| Supplement | $62.70 pf |
| Energy Supplement | $10.60 pf |
| Total | $862.60 pf |
The combined couples full payment including supplements is $1725.20, which means that a single full Age Pension is 2/3 or 66% of the couples amount. This percentage is intended to be a recognition that, in certain ways (rates, heating, maintenance), two can live as cheaply as one, but in other ways (transport, health costs, food) they cannot.
Homeowners and non-homeowners are different in the eyes of Centrelink
As you probably know, the Age Pension is calculated on the basis of a means test which considers your income and your assets. Whilst your primary residence is exempt from the assets test, if you own a home, your asset thresholds vary from those who don’t. The following table shows the latest (September 2024) thresholds for financial assets for a part-Age Pension.
Pension Disqualifying Assets Limits
| Family Situation – Resident | 20 Sep 2024 |
| Single, homeowner | $695,500 |
| Single, non-homeowner | $947,500 |
| Couple (combined), homeowner | $1,045,500 |
| Couple (combined), non-homeowner | $1,297,500 |
These are the thresholds for the full Age Pension showing the higher amounts for those who rent compared to homeowners:
Assets free areas for maximum payment
| Homeowners | |
| Single | $314,000 |
| Couple (combined) | $470,000 |
| Illness separated (couple combined) | $470,000 |
| Non-homeowners | |
| Single | $566,000 |
| Couple (combined) | $722,000 |
| Illness separated (couple combined) | $722,000 |
For both a full and part-Age Pension, non-homeowners are allowed to have a higher level of assets before they lose an entitlement, than do homeowners. Theoretically this is an attempt to support those with higher housing costs because they rent, compared with the relatively lower costs of home maintenance. But are these thresholds achieving this aim?
As we wrote in April, there seems to be an anomaly.
The key issue is that some assets are treated differently under the different tests as follows:
- Your home is exempt from the assets test and no deeming applies
- Personal assets and non-financial investments: These are assessed under the assets test but no deeming applies
- Financial assets such as bank accounts, shares and super are included in both the assets test and income test – due to income being deemed, which could be viewed as an exercise in double dipping.
This double dipping on financial assets could also inadvertently discourage people from investing in income producing assets.
Are all Australians equal in retirement?
Other perspectives on equity and retirement were offered in the final report released by the government-sanctioned Retirement Income Review in 2020. This review found three major aspects of our retirement income system which prevent an entirely level playing field. Here’s what the authors of the report had to say:
‘The Age Pension, combined with other support provided to retirees, is effective in ensuring most Australians achieve a minimum standard of living in retirement in line with community standards. But some groups do not achieve this goal.
A significant number of older Australians who are renting in the private market need additional assistance. Increasing the rate of Commonwealth Rent Assistance will only have a small impact. A new approach is required.’
‘The home is the most important component of voluntary savings and is an important factor influencing retirement outcomes and how people feel about retirement. Home owners have lower housing costs and an asset that can be drawn on in retirement. If the decline in home ownership among younger people is sustained into retirement, there will be an increasing number of retirees who rent. The system favours home owners, such as through the exemption of the principal residence from the Age Pension assets test.’
And finally it found that life-course disadvantage means that certain individuals (women, people with a disability, Torres Strait Islanders and others) continue to miss out:
‘The Age Pension helps to reduce income inequality for these groups in retirement compared with working life. But an individual’s superannuation balance, and retirement income, largely reflects the extent of their engagement in the workforce, both income and years worked. Those on higher incomes make more superannuation contributions and have larger superannuation balances. For example, the gap in superannuation balances at retirement between men and women is the accumulation of economic disadvantages faced by women in working life, particularly the gap in earnings and time spent in the workforce.’
The poverty trap
And then there is the question of whether the different Age Pension allowances prevent older Australians from slipping into poverty. Again, it is the renters who are clearly disadvantaged. According to joint research by the Australian National University (ANU) and Grattan Institute, about half of all people renting in retirement are living in poverty.
This comes back to the disproportionately high portion of income that is required to rent in modern day Australia.
How does this work in practice?
Sometimes following the detail of research into income and assets test implications can be heavy going. So today we share the tale of three retirements to enable you to see how the rules work and judge for yourself how fair the Age Pension is.
| Michelle | Albert and Simone | Eddie | |
| Age and marital status | Single, aged 67 | Couple, both 67 | Single, aged 67 |
| Employment status | Previously a nurse, no longer working | Neither working | No longer working |
| Homeowner status | Non-homeowner | Homeowners, no mortgage | Homeowner, mortgage |
| Value of home | $0 | $5,000,000 | $1,500,000 |
| Non-deemed assets (car, home contents) | $45,000 | $45,000 | $45,000 |
| Mortgage | $0 | -$250,000 | |
| Total super | $180,000 | $300,000 | $290,000 |
| Other financial assets | $20,000 | $10,000 | $40,000 |
| Total assets | $245,000 | $5,355,000 | $1,625,000 |
| Age Pension entitlement | Full – $29,754 | Full – $44,855 | Part – $24,996 |
This comparison is quite simplistic in some ways, as it shows the same age and non-deemed asset levels. But this allows us to illustrate the following:
- it is possible for Albert and Simone to have nearly $5.5 million in assets and still receive a full Age Pension,
- while Eddie, with less than a third of those total assets does not qualify for a full amount, receiving a part-Age Pension instead.
- This contrasts markedly with Michelle, who is likely to need up to 40% of her annual income of $29,754 to cover rental expenses, leaving her with about $18,000 per annum, plus a small pension top-up from super, to cover all other outgoings.
While Eddie may struggle to cover mortgage repayments without using some of his super, both he and Albert and Simone have an asset from which they can access retirement funding should it be necessary. Both households can also downsize and use funds from the proceeds to further top up their super. Put simply, they have many more options.
What can be done to ensure the Age Pension serves all Australians well?
Here are some ideas:
- Exempt all assets under the lower asset threshold from both the asset test and also from being deemed for the income test.
- Commonwealth Rent Assistance may need to be reviewed in line with actual rental costs as opposed to regular modest increases to a low base amount
- As the home becomes an ever more important part of retirement funding, the blanket exemption from the Age Pension means test may need to be reconsidered for homes above a certain amount.
- A Universal Age Pension might pay for itself by removing the massive level of bureaucracy involved in assessing and delivering it to more than 2.6 million Australians.
What say you?
Do you think all Age Pensioners get a fair go?
If not how would you change the system to make it better for more retirees?
Are you entitled to an Age Pension? If so, how much are you likely to get? You can check by using the free Retirement Essentials Age Pension Eligibility Calculator.
And if you are already receiving this benefit, could you be eligible for even more? That’s when a ‘Maximising your entitlements’ consultation can assist.
