The Age Pension is the Foundation of Retirement Income

Keeping Retirement Simple – Part 5

Even if you don’t get it yet, the Age Pension is key to retirement  planning for most people in Australia.  Over half of older Australians get more than half their retirement income from the Age Pension.  And 80% of people are expected to be on at least a part Age Pension by the time they’re 80.   It’s a reliable safety net and a guarantee that there’ll always be a basic level of income to support your spending in retirement.  

So, Principle #5 of our retirement spending guide is Pay attention to your Age Pension and other government entitlements.  

How valuable is the Age Pension?  

Well for someone on the full Age Pension from 67 to say 92, it might pay out $725,000 for a single person and $1,092,500 for a couple over that 25 year span.  And for part pensioners, it’s also very valuable.  Even someone who’s not getting it yet can have the expectation that they might get it later, or it’s there if they get into difficulty.  

Let’s take a look at our 4 “typical” retiree groups and see how they benefit from the Age Pension.

	Full Age Pension	Part Age Pension	Age Pension in the Future	Age Pension ineligible
Total assets	$100,000	$500,000	$1,200,000	$2,000,000
Lifetime Age Pension payouts to 92 – single	$725,000	$654,300	$327,900	$172,500
Lifetime Age Pension payouts to 92 – couple	$1,092,500	$1,085,100	$849,300	$436,700
When might Age Pension begin	At 67	At 67,	A bit later as they spend down their assets or stop working	In their 80s as they spend down their assets

*Couples can actually qualify for a part Age Pension with as much as $1,012,499 if they are home owners and $1,254,499 if they don’t own their home.  

Don’t apply late & keep checking

It’s so valuable and such an important part of your retirement income.  You really need to apply on time.  However, we find over and over again that people are delaying applying.  They miss out because there is no “backpay” on the Age Pension.  The government doesn’t say “oh well, we’ll just make up for it.”  Instead, you’ve got to have your application in to get payment on time.  

If you’re late to apply then you may cost yourself tens of thousands of dollars, which puts a dent in your retirement.  Our surveys tell us that only 44% of people say they’re applying on time.   That’s why we constantly remind our clients to “check their entitlements” and use our eligibility calculator.  We’re on a mission to get people to get the Age Pension they deserve.  

Many people won’t qualify right away at age 67 for the Age Pension, and the valuable Age Pension Concession Card,  because they’ve got too much in assets, so fail the Assets Test, and even more often because they’re still working and not qualifying under the Income Test.  

For these people, there’s a very important “consolation prize” in the Commonwealth Seniors Health Card (CSHC).  The CSHC offers important benefits on medical services and medication, as well as other concessions (such as utility, or car registration discounts), which vary by state. If you’re over 67 and unless you have a high income (currently $95,400 for a single and $152,640 for a couple), you’ll qualify and you should apply.  We estimate the Card might be worth $2-3,000 per year in savings, more in some states.  

And if you’re on the CSHC or haven’t qualified initially, it pays to keep checking your eligibility.  We find that more people qualify as they get older – either because they stop working or because they’re spending down their assets to fund retirement.  This chart shows an estimate of what percentage of people are eligible for the Age Pension and the Seniors Health Card by age.  You can see how Age Pension eligibility rises as people get older.  

Some great things about the Age Pension

We’ve already shown how valuable the Age Pension can be over your lifetime.  There are some other really nice features:

• It’s a great inflation hedge.  The government adjusts the rates twice a year, in March and September.  Over time, the rates have grown a little faster than inflation.  There aren’t many other sources of retirement income that are as dependable for inflation protection.
• It’s a great source of protection if you live a long time.  The Age Pension keeps going as long as you do.  It’s for life as long as you continue to qualify.  
• Part pensioners usually find that it increases in importance to them as they get older.  As they spend down their assets, they qualify for a higher payout. They may start on a modest pension at 67, but by the time they’re 75 it could be a full Age Pension.  Again, it pays to check your entitlements to ensure that you’re getting what you deserve.  We find that many people come back regularly to check what they should be getting.
• Part pensioners can find that it protects them if their assets take a tumble. For example, due to the so-called taper rate applying to part pensioners, your Age Pension payout reduces/increases $78 per year for each $1000 more/less you have in assets. Part pensioners will find their entitlements are higher if their assets have declined. So, in the market decline during the Covid onset in 2020, most people suffered losses on their investments.  But part pensioners had the impact moderated by a rise in pension payments.  

While it’s great in so many ways, we all would like it to be more or more available.  And it still remains an incredibly complex government entitlement. And Centrelink continues to be frustrating to deal with.  We hope to help people make the most out of their entitlements with the least pain possible. If you need help with applying for the Age Pension or CSHC a great first step is to check what you are eligible to receive.  

Coming up next time: Retirement Principle #6: You need to be prepared for a range of outcomes.