To qualify for the Age Pension, you must first satisfy the age and residence requirements.

You must be an Australian resident and in Australia on the day the claim is lodged.In addition you must have been an Australian resident for a total of at least 10 years. 

 

Understanding how the tests applied by Centrelink work can result in the age pension received being maximised. Like most things to do with investing, the younger a person is when they plan for retirement the better off they will be financially.

Pension age

 

For someone to be eligible for the age pension, they must have reached the required age. Currently for a male this is 65 and for a female it is 64.5. The age for women born after December 31, 1948, will increase to 65.

 

The eligible age when someone is entitled to receive a pension is important when planning to retire. As the amount of age pension a person or couple receives depends on both the income and the asset tests, it is important to be aware of how these tests work.

 

Assets test

 

The assets test, like the income test, has two thresholds and is split into two categories. The full age pension is received when a lower assets test threshold is not exceeded. This threshold for non-home owners is $332,000 for singles and $412,500 for couples. For home owners the lower threshold is $192,500 for singles and $273,000 for couples.

 

Once the lower thresholds are exceeded a person or couple's entitlement to the age pension is reduced by $1.50 a fortnight for every $1000 their assets exceed that threshold. No age pension is received once an upper threshold is exceeded. The upper threshold for non-homeowners is $847,250 for singles and $1,189,500 for couples. For homeowners the upper threshold is $707,750 for singles and $1,050,000 for couples.

 

Strategies to increase payments

 

When one member of a couple is younger, having super in their name, rather than the person who will be eligible to receive the age pension, can result in a higher age pension being received. This is because superannuation is not counted as an asset until a person is of age pension age.

 

In this situation the age pensioner will only have the value of their superannuation counted under the assets test and the net value of the pension they receive, after deducting the purchase price of the pension, under the income test. The partner not of the age pension age will not have the value of their superannuation counted unless they are receiving a pension.

 

The purchase price of a superannuation pension is calculated by dividing the value of a person's superannuation, at the time they start the pension, by their life expectancy. For example a 65-year-old male commencing a pension with $300,000 in superannuation has a life expectancy of 18.54 years. This results in a deductible purchase price of $16,181 a year.

 

A person's eligibility to receive the pension cannot be improved immediately by giving away assets. This is because when a person gifts assets Centrelink counts the gift, which is in excess of the maximum gifts allowed, for a period of five years under both the asset and income tests. A person or couple can give away assets up to $10,000 in a financial year, and up to $30,000 over a five-year period.

 

This means where assets or investments would more than likely still be in existence when a pensioner dies it can make sense if these are given away five years before a person or couple become eligible for the age pension.

 

For example, with a holiday house owned by potential age pensioners, which will be left to the pensioners' children upon their death, it can make sense to pass ownership to the children via a gift five years before the parents become eligible for the age pension. This would mean the value of the property would not be counted under the assets test.

 

The downside of this, however, is capital gains tax could be payable as a result of the disposal of the holiday house.

If the person or couple who own the holiday house are not working when it is transferred to the children, the tax impact can be lessened by making a tax-deductible personal super contribution.


- Max Newnham