By Damian Gibson
Financial Adviser, Elevate Wealth Solutions
CENTRELINK can be confusing at the best of times.
When terms like Asset Test, Income Test and Deeming Rates are thrown around it adds another layer of confusion altogether.
Here we will cut through the jargon to make some sense of it all.
Apart from being the right age, your eligibility for the Age Pension is determined by how much your assets are worth (the asset test) and how much income you get (the income test).
The test that delivers the lower amount of Age Pension is the test applied to you.
This test assesses the value of the assets you and/or your partner own.
Common assets assessed include, but are not limited to, superannuation, real estate (excluding your family home), household contents, cash, shares, cars, boats and caravans.
Centrelink assesses the market value of your assets and applies it to the test.
To receive the full Age Pension your assets must be below $263,250 if you are a single homeowner, or under $394,500 for a couple who own their home.
However, if the value of your assets are above these thresholds, then you still might be eligible to receive a part Age Pension.
A common question that gets asked is “How much money can I have in my bank before it affects my pension?”.
Your bank account balance counts towards your asset test.
Centrelink assess the money in your bank exactly the same way as they assess your other assets.
If your assets are above the full Age Pension threshold, the amount you receive will gradually reduce by $3 per fortnight per $1,000 of assets.
The greater the value of assets you have, the less Age Pension you receive until it completely cuts out when your assets exceed $578,250 for a single homeowner or $869,500 for a couple who own their home.
As the value of your assets change, the amount of Age Pension you receive can change as well.
For example, if the value of your superannuation fund has recently declined in value due to the economic impacts from COVID-19, you might be eligible to receive a higher level of Age Pension.
This test assesses the level of income you and/or your partner earn.
Common sources of income assessed include, but are not limited to, employment income, rental income, and deemed income from your financial assets.
Centrelink assesses your income and applies it to the test.
To receive the full Age Pension, your fortnightly income must be below $174 if you are a single, or under $308 a fortnight if you are a couple.
Like the asset test, if your income exceeds these thresholds then you still might be eligible to receive a part Age Pension.
If your income is above the full Age Pension threshold, the amount you receive will gradually reduce by 50c for every $1 you earn per fortnight until it completely cuts out when your fortnightly income exceeds $2,062.60 for a single or $3,155.20 for a couple.
Money in your bank, and other assets such as term deposits, shares, and your super are all classed as financial assets.
These financial assets are considered by Centrelink to earn you a certain amount of income using deeming rates.
Therefore, if you have $50,000 in a term deposit earning you 2.5 per cent interest, Centrelink deems this money to earn a certain amount by applying their deeming rates, not the rate of your term deposit.
The deemed income from your financial assets are then applied to the income test.
The deeming rate for singles is 0.25 per cent for the first $51,800 of your financial assets and 2.25 per cent on any amount more than $51,800.
For couples, a rate of 0.25 per cent for the first $86,200 and 2.25 per cent on any amount more than $86,200 will be used to calculate the assessable deemed income from your financial assets.
For example, if you held $80,000 in a bank account and $56,000 in shares, these financial assets would be deemed to earn you approximately $1,336 per annum by Centrelink.
This deemed income would then be applied to your income test.
Deemed income does not apply to the asset test.
As time goes on the value of your assets and income change.
It is important to update Centrelink of any changes to ensure you are receiving the appropriate rate of Age Pension.
Please contact us to help you make sure you are maximising your Age Pension entitlements.