You could benefit from Age pension changes starting 1 July 2023
With many Australia’s struggling with the rising cost of living, upcoming changes to the Age Pension could provide a much-needed boost to payments mid-way through the harsh cold of winter.
On 1 July, the Age pension rates themselves are not changing but the thresholds that determine how much pension is paid will be increased for inflation. When calculating your rate of pension, Centrelink apply both an assets and income test. Whichever test produces the lowest amount is used to determine your pension payment rate. An increase in the thresholds for the income and assets test will mean some part-pensioners may now move to the full rate of pension. Likewise, some Australians who were previously ineligible due to having assets above the part-pension thresholds may be able to claim a part-pension and access additional benefits that come with it.
The rules right now
Due to high inflation, indexation of thresholds used to apply the assets and income test from 1 July is larger than usual.
To be eligible for any pension payment, singles can currently earn $2,318 per fortnight, while couples living together can earn $3,544 combined.
Single homeowners can have $634,750 worth of assets aside from their home for a pension payment, and couples $954,000.
To qualify for a full pension, a single person can earn $190 per fortnight before their pension payment is affected, or $336 for couples. Above this the Age Pension reduces by $0.50 for every dollar of income you earn over this threshold per fortnight.
A single homeowner can have about $280,000 of assets outside their home to qualify for a full pension, while a couple can have $419,000. Under the assets test, the Age Pension reduces by $3 per fortnight for every $1,000 of assets above the threshold.
How will the new rules affect me?
From July 1, the changes mean singles can earn $204 a fortnight and couples $360 a fortnight, before they lose their full pension and switch to a part pension.
For single homeowners, they can also have about $301,750 worth of assets before their full pension starts to reduce, while single non-homeowners can have $543,000.
Homeowner couples on a full pension can have $451,500 worth of assets before they start receiving a part pension, or $693,000 for non-homeowner couples.
If you previously were not eligible for a pension as you had too many assets or earnt too much income, these changes could see you gaining access to a part pension depending on your circumstances.
Part of the changes also includes a slight change to the deeming threshold. Under the income test, deeming is a set of rules used to work out the income created from your financial assets. It assumes these assets earn a set rate of income, no matter what they really earn.
From 1 July, the deeming thresholds will be $60,400 for singles and $100,200 for couples even though the deeming rate of 0.25% and 2.25% remains unchanged. This means a single person will generate 0.25% of deemed income on financial assets up to $60,400 and 2.25% on amounts above.
If your pension is determined by the income test, this increase in the deeming threshold could result in a minor change to your pension as more of your financial assets are captured under the 0.25% lower deeming rate.
The Age Pension age is also increasing to 67 years from July 1. If you were born on or after 1 January 1957, you must be 67 years to be eligible for the Government Age Pension. If you want to start receiving the pension shortly after your birthday, you’re welcome to complete and submit your Age Pension application anytime in the 13 weeks prior to your birthday.
Regularly update Centrelink to ensure your pension rate is accurate
If your circumstances have changed, remember to update Centrelink within 14 days to ensure your fortnightly pension payment rate is accurate. Even though your investments are generally automatically revalued by Centrelink twice a year in March and September, it doesn’t mean you can’t update Centrelink about your assets and income ahead of these times.
Updating Centrelink of any change in your circumstances can help ensure you don’t miss out on payments. For example, if you have been making regular lump sum withdrawals from a retirement income stream or receiving regular pension payments, or there has been a significant downturn in your investment portfolio, the value used by Centrelink to calculate your pension payment rate under the assets and income test could be overestimated, resulting in a lower pension rate than what you are entitled to.
With the cost of living continually increasing, your retirement savings may have reduced more than you realised. Financial markets have been fairly volatile with many issues impacting it such as the war in Eastern Europe, high interest rates, high inflation etc. While no one wants to see the value of their investment decline, a downturn in your investment portfolio (and therefore Centrelink assessable assets and income) could affect your Age Pension eligibility and entitlement.
The value of lifestyle assets such as cars, boats and caravans can also depreciate quickly. Centrelink doesn’t automatically apply a rate of depreciation, which means that the assets you own can become over-valued as time goes by. For this reason, you should ensure the details Centrelink are using to calculate your pension payment rate accurately reflects the value of the assets you currently have.
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