Is the Age Pension unfair

This week one of our team, Mikahil Walden, pointed out an anomaly in the Age Pension thresholds that really disadvantages one group of people.  And in the midst of a national housing crisis it’s renters that are missing out.

So what’s going on?

The recent release of the new Age Pension rates and thresholds has highlighted yet again a major inequity in our system.  Many that don’t own their own home, particularly singles, are being disadvantaged by income and asset thresholds. Services Australia says a single nonhomeowner can have $544k in assets and still get the Full Age Pension. Mikhail’s analysis shows that in some circumstances the real impact of the asset threshold for a single person renting their home cuts in at just over half – 53%  – of what the government and its agencies promote. 

Couple nonhomeowners also can’t have all the threshold asset total in super to get the Full Age Pension.  They can only have $505k of the $694k threshold, or 73%.  Meanwhile, couple homeowners can have their entire limit in financial assets without impacting their pension, and single homeowners are only marginally impacted.

In theory renters have higher asset thresholds for the Age Pension than homeowners.  This is in part to compensate for the family home being exempt from the asset test and also recognises renters will have a higher cost of living  – they have to pay rent – than most homeowners.  But in reality many don’t receive the benefits of those higher thresholds.  This is because they are subject to both the income and asset test when assessing their entitlements.  And their financial assets are subject to deeming so even if they are under the assets test limits those same assets can cause them to lose some of their entitlements due to the deemed income.  The following chart shows what is happening in reality.  

Misleading thresholds for full pension: stated asset vs effective limits

You can see the stated thresholds in red, but in blue the actual thresholds when those assets are held as financial assets.  It’s misleading and unfair.  And it could lead to perverse outcomes where a renter might “invest” in non deemable assets such as cars just to get more Age Pension.  It’s probably not a good idea and I doubt it’s what the government intended.   

So should something be done to redress this?   The whole point of giving renters a higher threshold is to recognise the disadvantage they have relative to homeowners and give them a chance to get a comparable standard of living.  Renter retirees face two major disadvantages compared to homeowners 

  • higher outgoings because their rent is a huge portion of their budget; and
  • they don’t have a home as a source of capital in the future.  

For single renter retirees, deeming eliminates the potential advantage of higher thresholds.  

The thresholds are hard to understand, and sometimes even harder is getting those thresholds to work for you, not against you as is sometimes the case.  A good first step is to check your entitlements on our free Age Pension calculator.  And then if you think you might be able to get some more you can consider booking a maximising entitlements consultation with one of our advisers.  

So what is your view?  Should more be done to address the anomaly that the system doesn’t appear to be working the way it was intended for renters? Or perhaps you are happy with the way the thresholds are working.  Let us know what you think.