Provided by Mercer: 11/2/09
In January, it was reported that the number of retirees successfully applying for the age pension has gone from 2000 a week to 3000 a week.1
The reason for the increase? The global financial crisis has hit hard at both the incomes and, significantly, the assets of retirees. Many retirees who weren’t previously eligible for the pension due to the level of their assets, now are.
Eligibility for Age Pension
Males are eligible for the age pension from the age of 65, while eligibility for females ranges from 60 to 65 years, depending on the year you were born. The amount of age pension you receive is determined using two tests – the income and the assets tests – as well as your age. Once these tests are done, the test which produces the lowest entitlement is the one that applies to you.
Income and assets tests
The income test is fairly straightforward. A person or couple can earn a certain amount of income each fortnight and still receive a full age pension. As a person or couple’s income rises above this amount, a part pension is paid, until the income reaches a point at which there is no entitlement.
The assets test is, given recent developments, of more interest. According to the Centrelink definition an asset is any property or item of value that you or your partner owns or have an interest in, including those held outside Australia. Some assets are exempt including your principal home, some income stream products (such as lifetime pensions commenced prior to 20th September 2007), funeral bonds, and accommodation bonds paid on entry to residential aged care facilities. Assessable assets include:
- The current value of your cash and financial investments.
- Superannuation/rollover investments held by people over pension age.
- Real estate including holiday homes.
- Motor vehicles and household contents.
The value of many of these assets has declined recently and, as the following case study illustrates, this means some retirees are now eligible for a pension for the first time. With the right kind of planning, the value of an age pension can be optimised.
Case study
Retired couple David (who has just turned 65) and Sue (who has just turned 60) are considering how to meet their income needs in retirement now that David has reached age pension age.
Based on their current income and assets (which have recently fallen due to market declines and because they have drawn lump sums from their allocated pensions for an overseas holiday and for maintenance on their home) David is not eligible for an age pension. Sue is also not yet eligible because of her age.
David and Sue consult a financial adviser who, by suggesting a number of changes in relation to their allocated pensions and the income they receive, helped them maximise their age pension. As a result, David is able to supplement their income with some age pension entitlement as well as being entitled to the additional benefit of receiving a Pensioner Concession card – which gives access to a number of additional benefits (see below).
Even a small entitlement can make a difference
It’s not just the additional income that’s of value when you are entitled to an age pension – even if you only get $1 per fortnight. The additional benefits – access to the Pharmaceutical Benefits Scheme, concessions on utilities, one-off bonus payments (such as those provided by the Federal Government in December 2008), and internet and phone allowances – can make a big difference.
Centrelink provides a range of information about the age pension, either online or through customer service centres. However the paperwork can be complex and a licensed or appropriately authorised financial adviser can help navigate what’s likely to be an unfamiliar environment to many. An adviser may also be able to show you strategies that maximise your entitlements, as well as modelling and projections that show how much you can afford to spend and how long your money might last.
More information
- Visit centrelink.gov.au
- Call 1800 633 403 to speak with a Mercer financial adviser about your options
1 Interview of Senator Nick Sherry by John Barron, ABC Newsradio Drive, Friday, 9 January 2009
This article was published in The Age Money Maker (Saturday, 07/02/2009).
Every fortnight in The Age Money Maker a Mercer financial adviser provides advice on topical issues.
This information has been prepared by Mercer (Australia) Pty Ltd ABN 32 005 315 917 for general information only. The information does not take into account your personal objectives, financial situation or needs. Therefore, you should not act on this information if you have not considered the appropriateness of this information to your personal objectives, financial situation and needs. You should consult a licensed or appropriately authorised financial adviser before making any investment decision.
