14 | Age Pension
75% of Australians currently at pension age receive some form of age pension – be it a partial or full pension.
You don’t automatically receive the age pension when you reach pension age. You need to actively apply for this government-funded benefit by submitting the relevant Centrelink forms to Centrelink. Centrelink is part of the Department of Human Services of the Australian Government.
To qualify you need to meet four conditions. You need to be of pension age. Be an Australian resident for social security purposes. Pass the income test. And pass the asset test.
The first condition is that you must be of pension age. Your pension age depends on your date of birth and is :
65 years if born before July 1952
65 years and 6 months if born July 1952 to December 1953
66 years if born 1954 to June 1955
66 years and 6 months if born July 1955 to 1956
67 years if born in 1957 or later.
If you are a woman born before 1949 your pension age is even lower than 65 years, although we are not sure how much longer the government will be able to make a pension age dependant on gender.
The second condition is that you need to be an Australian resident. And you must usually reside in Australia on the day you make your claim.
An Australian resident is an Australian citizen or a permanent visa holder or a protected Special Category visa holder from New Zealand.
The rules around residency tightened on 1 July 2018 when the Enhanced Residency Requirements for Pensioners came in. Under these new rules you now need to prove 15 years of continuous Australian residence when applying for a new age or disability support pension, unless you meet one of two exceptions.
You either had 10 continuous years of Australian residence including at least 5 years between age 16 and pension age.
Or you had 10 continuous years of Australian residency and proof you have not received activity tested income support for cumulative periods of five years or more.
Existing exemptions will stay the same. So you don’t need to meet these residency requirements, if you are receiving a widow, widow B or partner allowance when reaching pension age. Or if you are or were a refugee. Or if you are a woman and your partner died while you were both Australian residents, provided you were an Australian resident for at least 2 years before your application. But we do shake our heads at this one. Why only if you are a woman? What about a stay-at-home dad whose late wife was the bread winner?
Before July 2018, the residency rules were more lenient. You needed to have been an Australian resident for at least 10 years. But these 10 years didn’t have to be continuous. You were able to add up the years over multiple stays, provided one of those stays was at least 5 years.
Australia has a social security agreement with over 30 countries. If you reside and/or work in one of these countries, you might still count as an Australian resident for social security purposes thanks to the special rules in these agreements.
To be an eligible individual you must satisfy the age pension income test. If you don’t, there is no pension. Not a full one and also not even a partial one.
There are actually two tests. The income test and the asset test. And you need to pass both tests to qualify.
The test that delivers the lowest amount of entitlement is the one that will determine your entitlement. If you fail either test, you are not eligible.
The income test assesses your fortnightly income against thresholds set by the government. If your fortnightly income exceeds the full income threshold, then your entitlement will be reduced by 50 cents for every dollar a fortnight you are over the full income threshold. Your entitlements cut out when your fortnightly income reaches an upper threshold set by the government, the so-called cut-off.
The thresholds vary depending on your family status, living arrangement, disability and other factors. So there are different thresholds for example for an individual versus a couple.
If you own financial assets (such as shares, term deposits or since 2015 super), then the income test doesn’t actually use the actual income earned from these assets. Instead the test uses deemed income.
Deemed income is when you assume a rate of return even when that rate isn’t necessarily what you actually earn on your investment.
If you choose to work while on the age pension, then you are entitled to a Work Bonus. This bonus is $250 per fortnight and works like an offset.
So if you earn more than $250 in a fortnight from employment, then your assessable employment income for the purposes of the age pension income test is reduced by $250 a fortnight.
If you earn exactly $250 a fortnight, then your assessable employment income is zero.
And if you earn less than $250 a fortnight, then the relevant part of the bonus will reduce your assessable employment income to zero and the rest of the bonus will be used to accumulate a Work Bonus balance. This balance can be used to reduce future assessable employment income. You can accumulate a balance of up to $6,500.
For the assets test you determine the value of your assessable assets against the asset thresholds set by the government. The assets test looks at all your assets worldwide but then grants you certain exemptions, for example for your home.
An asset is essentially anything you own which has monetary value and can be converted into cash – no matter how liquid or illiquid the asset might be. But certain assets and asset classes are exempt from the test.
The value of each individual asset is calculated by determining what it would sell for at current market value, minus any debt it has secured against it.
Centrelink adds up the value of your assets and if the total value is below the threshold for your circumstances, you pass the assets test.
If the value of your assets exceeds the threshold, then for every $1,000 of assets exceeding the threshold, your fortnightly entitlement is reduced by $3. So if your assets exceed the threshold by $10,000, your fortnightly age pension will be reduced by $30 a fortnight.
Your entitlement cuts out when the value of your assets reaches an upper threshold. This upper threshold is adjusted 4 times a year in January, March, July and September.
For the assets test there are eight different categories of age pensioners. The categories are single individuals, couples living together, couples being separated by illness and couples where only one partner is eligible for the age pension. And then for each a classification into homeowners and non-homeowners.
Singles have higher thresholds than couples when you look at it per person. Couples being separated by illness have the same or higher thresholds than couples living together. And couples where only one partner is eligible usually have the same thresholds as couples living together.
Non-homeowners have higher thresholds than home owners. And this makes sense when you consider that rent often makes up a large percentage of living expenses.
So these are the four conditions to qualify for the age pension.
You only become entitled to the age pension from the date Centrelink receives your claim form and all supporting documents. So there is no backdating of entitlements.
It used to be that you could lodge an intent to claim and then have 14 days to submit your claim. And your entitlements would then start from the date you lodged your intent. But this no longer applies.
So if money is really tight, make sure you have all your papers ready by the time you reach your pension age.
Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.
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Last Updated on 30 January 2019