How can you best manage the connection between Age Pension entitlements and income from superannuation? This combination of retirement incomes can be extremely challenging to understand. The first step is to have a thorough understanding of the Age Pension. This includes:
- How to apply
- what the rules really mean and
- what your expected entitlement will be.
Based on this last calculation, you can then consider the many ways of managing superannuation withdrawals to complement Age Pension payments or, to reply upon 100% in the early years of retirement before your eligibility finally kicks in.
Today we step you through everything you need to know to fully understand your current eligibility. And then how to manage an application if you believe you will qualify.
What is the Age Pension?
The Age Pension is the main income support for older Australians. About three-quarters of those who are aged above 67 receive either a full or part Age Pension. This is received in a fortnightly payment from Centrelink, the agency which processes Age Pension applications and payments on behalf of the responsible Federal Government department, Services Australia.
Who can receive the Age Pension?
Eligibility is determined by a range of factors. The first two are age and residency. From 1 July this year, you must be aged 67 or older. You must also have been a resident of Australia for at least 10 years. At least 5 of these years must have been continuous.
Understanding the means test
The next major hurdle to overcome is means testing, which is calculated using both an income and assets test. If you fail either of these tests, you will not qualify. And if you do meet both tests Centrelink will apply the test which gives you the lowest amount of Age Pension. .
The income testis based upon income you receive including employment, rent, business income and other types of pensions.
As well as ‘deemed’ income which is a calculation of what you are likely to have earned from a range of investments, i.e. your assets.
Assessed assets generally include bank deposits, super, shares, property and home contents.
The family home (i.e. where you live) is exempt from the assets test.
Here are the current income and asset thresholds, which you will either ‘pass’ or ‘fail’.
Maximising entitlements within the rules
This is where Age Pension eligibility can become challenging. There are a whole raft of rules that can be used to restructure assets in order to achieve eligibility. For instance, you may be overstating your old car (a deemed asset) based upon sentimental value. That beloved Morris Minor may seem priceless to you, but valuing it at $70,000 is simply unrealistic when a similar model can be purchased for $18,000 on carsales.com.au. If you are one half of a couple, it’s vital that you know about the younger partner rules as re-organising assets such as the status of their super (and the amount of yours) could increase your likely payments. Similarly, knowing what to state as an asset and/or income is critical. Many applicants miss out on Age Pension eligibility as they double state their super – as an asset as well as the income stream they currently receive from it. Centrelink only needs this reported once (as an asset), so it’s important not to shoot yourself in the foot in your application. There are many more such details which can result in a knockback, so understanding how rules are interpreted matters a lot.
When can you apply?
As noted, you need to be of Age Pension age (67 for those born after 1 January 1957) in order to qualify. But you can apply up to 13 weeks beforehand, which means you won’t miss a single week of pension entitlements if you do qualify.
How can you apply?
There are a few ways to start your application. Here’s five things you can do to get underway:
First up, it will help to check your likely eligibility in case you are so far over the income and asset thresholds that you will not be successful for a long while yet. You can use the Retirement Essentials free Age Pension Eligibility Calculator to see how you are likely to go. Assuming you are eligible, or nearly so, next step is to start an application, which can be done in one of three ways – online, in person, or with assistance. It will help if you have a MyGov account, and a Centrelink Reference Number (CRN) already in place.
Applying in person at Centrelink
Assuming you are able to reach a local Centrelink office, you can visit the office to apply in a face-to-face appointment. You will need to prepare, of course, by downloading the 26-page form, filling it in as best you are able, and collecting all required documents (identity, income, residency etc.). Some Centrelink offices will require an appointment to be made, others will see you on a walk-in basis. The Centrelink Officer present will check your application and documents and upload them for appraisal or request further information.
This is the method that Centrelink would prefer you to use. Again, starting with a MyGov account and Centrelink Reference Number (CRN) means you can go directly to the application and work your way through the online forms and document uploads. Is this an easy process? It depends. For some people, it may be fairly intuitive and straightforward. Others can find it frustrating, confusing and have issues with uploads, which is quite a common story. Further confusion can stem from questions about partners and definitions of what are assets and what is income.
Applying with support
Retirement Essentials offers three main forms of support with Age Pension applications:
- Entitlements consultation – a 30-minute phone consultation to answer questions and support your application
- General consultation – a 45-minute video call to answer questions related to entitlements, super and investments, with a follow-up action plan
- Strategy consultation – 55-minute video meeting to review of your retirement income plans and goals and support to understand the trade-offs you may wish or need to make, followed up with an action plan
Keeping up with the changes
Age Pension rates, thresholds and deeming rates can change every year. There are two rates changes scheduled annually – on March 20 and September 20. Sometimes thresholds will change as well on these dates. Separately asset thresholds and deeming rates and thresholds usually change on 1 July. Retirement Essentials reports all changes before they come into effect. We also update our calculators so that your eligibility and payments can be safely checked ‘in real time’. Keep your eye on your inbox as we advise all such changes by email as soon as they are available.
What’s your situation?
What’s your experience of applying for an Age Pension been like?
Or have you yet to apply? Feel free to share good experience, bad experiences and any concerns in case we can help.