When it comes to maintaining your financial wellbeing in retirement, it’s important to understand that as you enter this phase of your financial lifecycle a certain shift in economic resources often occurs.
Namely, a shift from predominantly employment income* to income derived from a combination of your retirement savings (investments inside and outside of super) and any potential social security entitlements.
*However, this is not to say that employment income completely falls off the radar in retirement. For some of us, we continue to participate in some form of employment, whether it be casual or part-time work.
Age Pension
Overview
In terms of social security entitlements, according to the latest data*, in the 2019-20 financial year, 2.56 million older Australians (aged 65 and over) received the Age Pension, totalling $49.9 billion in payments. And, of these:
- 66.9% received the full-rate pension.
- 32.8% received a part-rate pension based on their income and assets.
Please note: The remaining 0.3% were recipients that were either suspended, manually assessed, or had a nil rate.
As you can see, the Age Pension remains a vital source of income for many older Australians in retirement. For context, the maximum total Age Pension rate (inclusive of relevant supplements) is shown in the below table.
|
Age Pension: Fortnightly payment rate (Applicable as at 1 January 2021*) |
||||
|
Relationship status |
Maximum basic rate |
Maximum Pension Supplement |
Energy Supplement |
TOTAL |
|
Single |
$860.60 |
$69.60 |
$14.10 |
$944.30 |
|
Couple (each) |
$648.70 |
$52.50 |
$10.60 |
$711.80 |
|
Couple (combined) |
$1,297.40 |
$105.00 |
$21.20 |
$1,423.60 |
|
Couple separated by illness (each) |
$860.60 |
$69.60 |
$14.10 |
$944.30 |
*The Age Pension rate is indexed on 20 March and 20 September each year to take into account cost of living increases/inflation.
It must be noted that the Age Pension aims to ensure older Australians can meet a minimum standard of living in retirement. It’s a safety net for those who don’t have enough super or other financial resources behind them to generate a reasonable minimum retirement income.
Importantly, specific eligibility tests (age, residency, and income and assets) need to be met to qualify to receive the Age Pension, either in part or full. We cover each of these eligibility tests briefly below.
Age test
You need to meet the minimum qualifying age to be eligible to receive the Age Pension. It’s important to note that not everyone has the same minimum age requirement, as it’s adjusted according to birthdate. Please see the table below for your minimum age requirement.
|
Age Pension: Age test |
|
|
Date of birth |
Qualifying age |
|
Before 1 July 1952 |
65 |
|
1 July 1952 – 31 December 1953 |
65.5 |
|
1 January 1954 – 30 June 1955 |
66 |
|
1 July 1955 – 31 December 1956 |
66.5 |
|
1 January 1957 onwards |
67 |
Residency test
You need to meet a residency test to be eligible to receive the Age Pension. Generally speaking, to meet the residency test for the Age Pension, you need to be an Australian resident, and have been so for at least 10 years in total. Also, for at least five of these years, there must have been no break in your residence. However, there may be some exemptions, for example, if you were a refugee or former refugee.
Income and assets test
You need to meet an income and assets test to be eligible to receive the Age Pension. However, it’s important to highlight that the rate of payment of the Age Pension is calculated under both the income test and the assets test, with the test that results in the lower rate (or nil rate) being applied. Please see the tables below for further information.
|
Age Pension: Income test* (Applicable as at 1 January 2021) |
||
|
Family situation |
Homeowners and Non-homeowners |
|
|
For full pension (per fortnight)^ |
For part pension (per fortnight)# |
|
|
Single |
Up to $178 |
Less than $2,066.60 |
|
Couple combined |
Up to $316 |
Less than $3,163.20 |
|
Illness separated, couple combined |
Up to $316 |
Less than $4,093.20 |
*Some assets are deemed to earn income, whilst there are special rules for other types of income. Furthermore, the Work Bonus may be applicable if you are earning income from employment.
^Income over these amounts reduces the rate of pension payable by 50 cents in the dollar (single), 25 cents in the dollar each (for couples).
#These amounts may be higher if Rent Assistance is paid with your pension.
|
Age Pension: Assets test* (Applicable as at 1 January 2021) |
||||
|
|
Homeowners |
Non-homeowners |
||
|
Family Situation |
For full pension assets must be less than^ |
For part pension assets must be less than# |
For full pension assets must be less than^ |
For part pension assets must be less than# |
|
Single |
$268,000 |
$583,000 |
$482,500 |
$797,500 |
|
Couple combined |
$401,500 |
$876,500 |
$616,000 |
$1,091,000 |
|
Illness separated, couple combined |
$401,500 |
$1,031,500 |
$616,000 |
$1,246,000 |
|
One partner eligible, combined assets |
$401,500 |
$876,500 |
$616,000 |
$1,091,000 |
*Some assets are deemed to earn income, while certain assets aren’t included (e.g. generally your principal home is exempt) in the assets test.
^Assets over these amounts reduce pension by $3 per fortnight for every $1,000 above the amount (single and couple combined).
#These amounts may be higher if Rent Assistance is paid with your pension.
With regard to the above, when considering transferring (or gifting) wealth before your passing, it’s vital to understand the impact that this may have on you financially, inclusive of Age Pension entitlements.
For example, in terms of the Age Pension, gifting and deprivation rules can apply. These rules are designed to prevent you from reducing your income or assets to qualify for or increase your Age Pension entitlements.
In broad terms, gifting refers to the disposal (or deprivation) of income or assets, where no adequate financial consideration is received (where you get less or nothing) in exchange for the income or assets.
If you have any questions regarding this article, please contact us.
*Australian Government, Australian Institute of Health and Welfare. (2019). Income support payments for older people.
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