But how will this work for you?
As you no doubt know the income and asset limits for full and part-Age Pensions were increased on 1 July this year. This is good news for many Australians who may have almost qualified for the Age Pension. It also means a slight increase in payments. This is because a ‘taper rate’ is applied to both income and assets over the threshold for a full Age Pension while still below the cut-off points. This makes it timely to step through an explanation of how taper rates work, so that you can ensure you are receiving your maximum possible income.
What are taper rates?
Around 2.6 million Australians are currently receiving either a full or a part-Age Pension.
Regardless of which pension you receive, your eligibility is based upon a means test. This means test is two-part, requiring that both your assets and your income are below a certain amount. You cannot comply with just one half of the test and whichever test has a less favourable result is the test by which your payments are defined.
How does the income test taper rate work?
There is an income test free area which means that those with assessable income less than (or equal to) this amount will be eligible for a full Age Pension based on the income test (they could be affected by the assets test though). A work bonus credit will also be applied to any employment income, which allows you to earn more income before reducing your pension payments.
There is also a cut-off amount (the upper income threshold), so if your income is above this amount you are automatically ineligible for the Age Pension
If, however, your income falls between the income test free area (the lower income threshold) and the cut-off amount, you will have the taper rate applied.
What are the new 1 July limits?
Single person
| Income per fortnight | Amount by which your pension will reduce | Annual income |
|---|---|---|
| Up to $212 (free area) | $0 | $5512 |
| Over $212 | 50 cents for each dollar over $212 |
Couple
| Combined income per fortnight | Amount the couple’s pension will reduce by | Annual income |
|---|---|---|
| Up to $372 (free area) | $0 | $9672 |
| Over $372 | 50 cents for each dollar over $372 (each) |
What are the new 1 July cut off points?
| Your situation | Fortnightly income cut off point | Annual |
|---|---|---|
| Single | $2,444,60 | $65,539.60 |
| A couple living together | $3,737.60 combined | $97,177.60 |
Your cut off point may be higher if you receive Commonwealth Rent Assistance or a Work Bonus credit, but lower if you are not currently living in Australia.
How the taper rate on (income) reduces payments
Jeff and Julie are in their seventies. They no longer work but do still each receive income from overseas pensions.
Their combined assets are under the threshold as home-owners ($470,000), so their Age Pension entitlement will be assessed based upon their income.
The maximum they can earn as a couple each year before their pension is reduced is $9,672 but their combined pensions pay an amount that converts to AUD $50,000.
This means that a taper rate of 50c per $1 will be applied to the $40,328 in excess of the threshold, thus halving Jeff and Julie’s pension to $20,764 per annum (or $775.53 per fortnight).
How does the Assets test taper rate work?
As with the income test, there is an assets test free area which applies a limit to assessable assets in order to access a full Age Pension.
There is also an assets test cut-off value above which no pension will be permitted. In between the maximum amount before ineligibility and the asset test free area, the assets test taper rate is applied. This taper rate is a reduction in payments by $3 per fortnight for every $1000 of assets above the maximum pension amount, i.e. the assets test free area.
What are the 1 July asset limits for a full Age Pension?
| Your situation | Homeowner | Non-homeowner |
|---|---|---|
| Single | $314,000 | $566,000 |
| A couple, combined | $470,000 | $722,000 |
If you’re a member of a couple, the limit is for both your and your partner’s assets combined, not each of you.
What are the 1 July limits for a part-Age Pension?
| Your situation | Homeowner | Non-homeowner |
|---|---|---|
| Single | $686,250 | $938,250 |
| A couple, combined | $1,031,000 | $1,283,000 |
(Those who received Commonwealth Rent Assistance will have a higher cut off point.)
How the taper rate (on assets) reduces Alfred’s payments
Alfred is a 69-year-old single homeowner.
He earns no wages or salary, and his income which is deemed on assets of $331,250 is well below the income threshold.
So his Age Pension entitlement will be assessed on the basis of his assets.
The full Age Pension assets threshold is now $314,000 for single homeowners.
Because Alfred is $17,250 over the threshold, a taper rate of $3 per fortnight, per $1000 in excess of the threshold, means that his pension will be reduced by $3 x 17.25, or $51.75 per fortnight ($1,345.50 per annum).
What happens if you are just over income and assets test free areas?
The taper rate can be easier to understand if you have a situation like Alfred or Julie and Jeff. But how does it work if you are in the area between maximum Age Pension allowance and cut off points for both your income and assets? Here’s how it works for Alice who is a single homeowner hoping to receive an Age Pension.
She is earning $25,512 in work income ($20,000 over the limit of $5,512). She has $364,000 in super assets (which is $50,000 more that the limit of $314,000). According to Guru Steven Sadler, the Head of Retirement Essentials Customer Services Team, Alice would be assessed under the income assessment and would be eligible for $19,455 per annum (which is $9,568 less than a full single Age Pension). An asset test assessment would lead to an entitlement of $25,123 per annum. But as previously mentioned, Centrelink will provide the income associated with the lower of the two tests.
Staying up to date
The team at Retirement Essentials prides itself on keeping all our calculators and support information up to date. This link takes you to a page which reflects the current income and assets thresholds as well as other helpful information.
You can also, at any time and without obligation, use the free Age Pension Eligibility Calculator. It automatically applies all income and asset limits as well as the Work Bonus credit, based upon your own personal circumstances. This means that you can quickly and easily check your Age Pension status.
Finding it hard to keep up with all these changes? You are not alone. For this reason Retirement Essentials offers two very relevant consultations:
An Age Pension consultation to help you with your Age Pension application
and
Maximising your Entitlements which is designed to help you explore ways you might be able to maximise your Centrelink entitlements).
Last week we heard from a member who bemoaned the difficulty of ‘not knowing’ what he didn’t know. Do you, too, feel that the rules for the Age Pension entitlement are really hard to keep up with? If so, in what way might we help?
My wife and I have:
* A total of 1.19 m in our superannuation and
* Receive a total of $69000 per year from our pensions
Do we qualify for any assistance from the Australian Government.
Please let me know!
Hi Ralph
I am not a financial advisor nor do I work for retirement essentials so this is only my opinion and not advice. Assuming you are homeowners the upper asset limit is $1,012,500 so as you have more than this in assessable assets, currently no you wouldn’t. Also remember you also have to include other assessable assets besides you super (which is basically everything except for the house you live in, cars, cash, watches, jewelry etc.).
Having said that given your level of assets I would definitely be seeking professional advice as it maybe that you may become eligible and you might be able to get a seniors card or other benefits.
PS: Centrelink does not take into consideration the actual amount you earn from your assets or how much you distribute from your super but rather they apply a deemed rate for income test purposes but it isn’t relevant to you as you would be asset tested.
Best regards
Glenn
Hi its Chris B im on the DSP for 22years and at age 68 should i stay on dsp or apply for the age pension. i was told its the same cut off points..
Hi Chris, technically the DSP does offer a couple of extra benefits the Age Pension does not, the main advantage of the AP is that it is a bit quicker and easier to apply for and maintain. Having said that, if you have been on DSP for 22years I’m guessing you know how it all works by now and so it is probably better to stick with it presuming you are still eligible for it.
information very helpful. Do you provide one on one financial advise.
Hi Roenna, we certainly do, CLICK HERE to pick the right one for you.
In the following example from your email I don’t understand why Alice’s Pension isn’t 10,000 less than full Pension? “Here’s how it works for Alice who is a single homeowner hoping to receive an Age Pension.
She is earning $25,512 in work income ($20,000 over the limit of $5,512). She has $364,000 in super assets (which is $50,000 more that the limit of $314,000). According to Guru Steven Sadler, the Head of Retirement Essentials Customer Services Team, Alice would be assessed under the income assessment and would be eligible for $19,455 per annum (which is $9,568 less than a full single Age Pension). An asset test assessment would lead to an entitlement of $25,123 per annum. But as previously mentioned, Centrelink will provide the income associated with the lower of the two tests.”
Hi Judy, I presume the math you are doing is $20,000 over the income threshold x the 50c reduction = $10,000 reduction? Although yes Alice is earning $20,000 over the threshold, a portion of that income is offset by the work bonus which reduces it down however you then need to factor in the deemed income from the $364,000 in financial assets which brings the income figure back up but not quite back to $20,000. This is why the Age Pension is reduced by $9,568 as opposed to $10,000 in this particular scenario.
I’m 69 and not working. I used my whole super to pay off my mortgage, and I now live of the rent from my investment property, which is about $22,000 a year. But I was told by Centrelink that as my investment property is worth about $475,000, I don’t get any part pension. Is this right?
Hi David, presuming you are single (as no mention of a partner) then the maximum assets you can have as a homeowner is $686,250 so the investment property alone would not rule you out.
I am single homeowner turning 65 soon and have 2 super accounts worth about $250000 and get a css defined benefit pension of about $40000 pa do I need to use some of my super before reaching old age pension age ?
Peter
Hi Peter, there are many options available to you to try and maximise your Age Pension but also your retirement in general. I’d recommend booking in a consultation with one of our specialists so they can go over the pros/cons of each option and then you can make the best decision for your situation. CLICK HERE to make a booking.
I am currently working part time with an income of $60k & my wife in getting
an income protection payment of $500 per week.
I will be retiring next year at the age of 67, can you please give me some options for working part time & the egilibity of the age pension
Hi Mx Guillard, there are many factors that need to be considered so a public comments forum would not be appropriate. Please book a consultation with one of our specialists HERE.
Hi I’m wondering if you can double check my numbers. I’ve put together a spreadsheet/calculator but I have very little confidence in it’s accuracy since the thresholds don’t make sense in some cases.
In your example of Alfred he is a single homeowner with $331,250 in assets subject to deeming. You say the deemed income is well below the threshold however I work out the deemed income on those assets to be $6245 being $733 over the threshold and therefore would decrease his pension by $366.50pa. However I do agree that this makes no difference as under the Assets test his pension would be reduced by $87 per fortnight so he would be assessed under the Assets test and receive a basic pension of $933.60 and with subsidies $1,029.30 per fortnight.
Do these numbers sounds right?
Thanks Glenn
Hi Glenn, when we said “well below the threshold” we were referring to the maximum amount someone can earn, not the minimum, my apologies for the confusion. The deemed income on $331,250 for a single person would actually be $6,201.13 because the formula is:
$62,600 x 0.25% = $156.5 (A)
$268,650 x 2.25% = $6,044.63 (B)
A + B = $6,201.13
Hi I am 64 and retired ,my super is still in accumulation mode( $170000)
I receive the full aged pension as my husband receives a DVA TPI disability pension
I will shortly receive an inheritance of $360,000
I intend to place this amount into my accumulation super account for the next two years to avoid the pension income and assets test
If i decide to withdraw say $40,000 for a new car does my super account remain in accumulation mode
Hi Linda, it’s always best to double check with your super fund but generally yes you can make a withdrawal and leave the remaining balance in accumulation.