RSM Australia

Aged pension – simple strategies that could increase your income – tip #1

As of 1 January 2017 more than 430,000 Australians lost, or suffered a substantial cut to, their Aged Pension Benefit from Centrelink as a result of the change to the Age Pension Asset Test.

If you are one of these people who have seen their fortnightly income drop as a result of these changes, you may be asking…

‘What can I do, or what changes can I make to my circumstances, to requalify for the Centrelink Aged Pension or to increase my fortnightly payment?’

In this series we’ll dive deep into the workings of the Centrelink Aged Pension Asset Test to give you some clarity about how the changes actually work. Plus we’ll provide you with some tips that can help increase your age pension and avoid some nasty traps.

Before delving into some of the ways that Centrelink allow you to improve your Aged Pension Benefit, it’s first worthwhile quickly revisiting how the Aged Pension Asset Test now works.

The amount of assets you can own, called the ‘Asset Test Free Area’, has actually increased since 1 January 2017. Depending on your relationship and home ownership status the value has increased as follows:

 

Before

From 1 Jan 2017

Increase

Single (homeowner)

209,000
250,000
41,000

Single (non-home owner)

360,500
450,000
89,500

Couple (homeowner)

296,500

375,000

78,500

Couple (non-homeowner)

448,000
575,000
127,000

However when the Asset Test Free Area was increased, another change took place which altered the rate at which the Aged Pension Benefit is reduced for every $1,000 worth of assets you own above the new Asset Test Free Area.

This rate, known as the ‘Taper Rate’, was also increased.

In fact the rate has doubled from $1.50 per $1,000 to $3.00 per $1,000.

So if you are a couple who own your home and have assessable assets of say $500,000, then the following could be the impact on your Aged Pension Benefit:

 

Pre January 2017

From January 2017

Difference

Assessable Assets

500,000 500,000 0

Less Asset Test Free Area

360,500 375,000  

Taper Assets

139,500 125,000  

Taper Income Reduction

209. 375.00  

Net Pension per fortnight

$1,129.95 $964.20  

Net Pension per year

$29,378.70 $25,069.20 -$430.95 per year

Note: this calculation is only based on the Aged Pension Asset Test

In this case despite a more generous Asset Test Free Area, the couple would have lost over $400 in aged pension benefits in the year.

So what can be done to try to rebalance the scales in your favour?

Well before starting to look at various planning strategies to increase your age pension there is one key action that every aged pension recipient should do first…

This is one of the easiest actions that can be taken, which can have almost an immediate benefit, and is something that many people overlook.

Update your Centrelink information - Tip #1

Centrelink, or more accurately the Department of Human Services, are generally reliant on you to keep your financial information with them up to date.

Although it is a requirement of Centrelink to notify them of any changes within 14 days, quite often, this is not done.

And more often than not, you the aged pensioner, are disadvantaged. The reason being that when assets are sold, or income is reduced, it can result in an increase in your aged pension benefit.

Therefore as your first step, you should contact Centrelink, or log into your account on the myGov website and take the following action:

  • Get a full list of all assets, liabilities and sources of income they have on register for you.

This is the starting point to see exactly how different your actual financial circumstances are compared to what Centrelink has on file for you. If it has been a while since you have done a detailed update then you may find a lot of differences that can provide some immediate benefit back to you. Once you have identified the differences then you can get to work on rectifying them as soon as you can.

  • Inform Centrelink if you have sold any investments and where the proceeds went

Unless you have informed Centrelink, then any investment assets that you have sold recently will still contribute to your Assessable Asset Value. Letting Centrelink know as soon as these assets are sold and what happened to the asset value, the cash, is important. For example if you sold some shares to pay for a holiday and home renovations, then this would reduce your Assessable Asset Value.

  • Update the value of your non-financial assets

Assets such as a car, caravan, house contents and the like have an assessable value but these can change, devalue, over time. Simply updating the values of these can result in a reduction in your overall Assessable Asset Value, if these assets have in fact dropped in value.

Have you made any large withdrawals from superannuation?

Don’t delay in telling Centrelink when you make large irregular withdrawals from superannuation. If these have gone to home renovations, holidays or other non-assessable expenses you may be entitled to a larger Aged Pension Benefit.

Centrelink only asks for an update of your Account Based Pensions once a year, but you really should advise them within 14 days if you make a large withdrawal in addition to your pension payments.

Has your relationship changed?

As can be seen from the tables above, Centrelink has some quite distinct benefit levels depending on your relationship status. Couple to Single, Single to Couple or even from Couple to Couple separated by illness. Despite their best efforts sometimes, changes on a partner’s side of Centrelink is not always reflected in an update to your details. Again a simple check here of what Centrelink have on record for you can be an easy way to an Aged Pension increase.

It’s important to note that although the above changes can improve your situation and Aged Pension Benefit moving forward, Centrelink does not do back payments.

We’ve seen an example where a couple’s Aged Pension Benefit income increased by $252 per fortnight simply by updating the assets Centrelink had recorded. That’s over $6,500 per year.

Unfortunately for them, Centrelink didn’t, and won’t, back pay them to the time when the asset in question was sold which was a considerable time prior.

To take the necessary action to get your information up to date with Centrelink, you can contact Centrelink in several different ways. This includes giving Centrelink a call on the phone or going into a Centrelink branch. Both of these are time consuming but will achieve your goal.

A third way is to sign up to the MyGov website. MyGov allows you to access your Centrelink details from the comfort of your own home, or from most mobile devices. You can view your income and asset details ensuring they’re all up to date.

A small note is that you may need statements or other documents to provide evidence that the sale of an assets has taken place, or of changes to superannuation accounts, plus the usual bank statements etc.

If you are unfamiliar with MyGov you can follow this link to access useful guides and videos.

Strategies to improve your Aged Pension Centrelink Benefit

Once your details are up to date with Centrelink, you may still be looking for some legitimate ways to further increase your longer term Aged Pension Benefit.

We have highlighted below some additional strategies that may assist in providing both a more secure future for yourself and an increased Aged Pension Benefit.

These strategies include:

  • Gifting - giving small amounts of your personal wealth to family or friends can reduce your assessable assets.
  • Funerals and funeral bonds - designing and paying for your funeral or purchasing a special bond can reduce stress on your family when the day comes and also reduce your assessable assets now.
  • Home improvements and efficiency investments - if you’re a homeowner the asset is already excluded from your assessable assets. Sometimes it can be worth making a small to medium investment to improve the house to increase the comfortable, safety or efficiency of the home in retirement. This could also potentially reduce your assessable assets improving your Aged Pension Benefit.

If you would like some more information regarding your assessable assets and to ensure your investments are effectively structured to optimise your income in retirement then contact us today.

Our retirement specialists can provide more detail on Centrelink aged pension changes and discuss any strategies with you which may improve your Aged Pension Benefit. Just click here to leave your details and a retirement specialist will contact you.

This article has been prepared by RSM Financial Services Australia Pty Ltd ABN 22 009 176 354, AFS Licence No. 238282.

As Everyone’s circumstances are different and this website doesn’t take into account your personal circumstance, it is therefore important that you consider the above in light of your financial situation, needs and objects, and seek financial advice before implementing a strategy.

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