If you have reached Age Pension age you may be eligible for the Age Pension and other benefits.

Eligibility for the Age Pension is based upon a number of factors and subject to both an assets and an income test.  You could also be entitled to other payments and benefits, including the Pensioner Concession Card, Pension Supplement and Rent Assistance.

Maximum Age Pension rates as at 20 September 2019 are as follows: 

  Fortnightly Annual
Single
$933.40 $24,268.40
Couple combined
$1,407.00 $36,582.00
Includes Pension Supplement and Energy Supplement. These supplements help you to meet the costs of your daily household and living expenses including energy costs.

To qualify for the Age Pension, you must first satisfy the age and residency requirements. Visit the Department of Human Services website for full details.

The social security means test rules for lifetime income streams

Acknowledging the importance of lifetime income streams in retirement, the Government has introduced new Age Pension means testing rules to ensure that lifetime income streams are fairly and consistently assessed under the income and assets tests (known as the social security means tests).

The new rules are designed to support the use of certain lifetime income streams which feature payments for life, regardless of how long a person may live, and reducing access to capital over life expectancy. These new rules can provide what can be attractive means testing outcomes for retirees.

It is important to understand that the new rules only apply to an investment in a lifetime income stream made on or after 1 July 2019.  The new rules do not apply to account-based pensions or term income streams (including term annuities).  Also, for any lifetime income stream investment made before 1 July 2019 the current rules (known as the “deduction amount” rules) will continue to apply.

Means testing

Your rate of Age Pension is calculated under both an assets test and an income test. The test resulting in the lowest rate will apply.

Assets test

The level of assessable assets you own are assessed against the assets test thresholds which vary depending on your home ownership and relationship status. For every $1,000 of assets in excess of the lower threshold, your rate of Age Pension reduces by $3.00 per fortnight, reducing to zero once your assets reach the upper threshold.

For lifetime income streams that commence on or after 1 July 2019 the new rules will generally assess:

  • 60% of the purchase price of the lifetime income stream until age 84, subject to a minimum of 5 years; and
  • 30% of the purchase price thereafter.

This concessional assessment can be attractive compared to alternate investment structures where 100% of the asset is assessable. 

Where your Age Pension is being reduced because of the assets test, an investment in a lifetime income stream could immediately improve your Age Pension eligibility.

Effective 20 September 2019, the assets thresholds are as follows: 

  Lower threshold Upper threshold
Homeowners

 
Single $263,250 $574,500
Couple combined $394,500 $863,500
Non-homeowners    
Single $473,750 $785,000
Couple combined
$605,000 $1,074,000

Income test

Income from various sources are assessed against the income test thresholds, which vary depending on relationship status. The way income is determined for this test depends on the nature of the income or investment.

For every dollar of income in excess of the lower threshold, your rate of Age Pension generally reduces by $0.50 per fortnight, reducing to zero once your income reaches the upper threshold.

The new rules will assess 60% of payments from lifetime income streams under the income test. For example, where a lifetime income pays an annual income of $5,000, only $3,000 will be assessed under the income test.

This may be more or less than the income derived from alternate investments but is generally seen as an attractive treatment.

Effective 20 September 2019, the income thresholds are as follows:

  Lower threshold
  Upper threshold
 

Fortnightly Annual Fortnightly Annual
Single
$174
$4,524 $2,040.80 $53,060.80
Couple combined
$308 $8,008
$3,122.00
$81,172.00

It is important to note that different investments or investment structures (including lifetime income streams) are treated differently under the means tests and can result in different Age Pension eligibility.

Determining whether and how much you are entitled to can be complicated. A financial adviser can help you determine your Centrelink entitlements.

Case study

How the new means test rules improved Age Pension outcomes for Wayne and Wendy

Wayne and Wendy are a 66-year-old couple who look a lot like many Australian retirees.

They own a well-maintained home in a nice suburb in an Australian city. They have scrimped and saved through their working lives to accumulate $300,000 each in super (which they had originally planned to convert into account-based pensions via their super funds). They also have $50,000 in bank savings and their non-financial assets (including cars and contents) are valued at $40,000.

This allocation of 25% of their retirement savings to a lifetime income stream ensures a level of income, in addition to any Age Pension entitlement, to ensure that regular expenses can always be met in retirement. Where this lifetime income stream commences on or after 1 July 2019 just 60% of the purchase price will initially count as an asset under the social security assets test and this will have the effect of reducing their assessable assets and increasing their Age Pension in the first year.

In this case their Age Pension in the first year will be $18,213 p.a. (an increase of $4,680 in the first year). Wayne and Wendy’s adviser has also modelled the effect of this assessment in later years as this relative benefit changes over time as their other assets fluctuate in value.

To find out more about the changes to the means testing of lifetime income streams, and potential impacts on your personal circumstances, contact your financial adviser.

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