This is the question I have recently received:
With shares, does Centrelink need to know the amount of shares and
the share price or just total $ invested?
Do you need to update them constantly as the share value increases?
I have never discussed share investing, so I thought it is high time to start talking about share in more details. After all shares, and specifically Australian Shares are my personal favourite way of investing for long-term.
But today we will concentrate on the specific issue: How shares are treated by Centrelink under the Assets test and how that will impact your Age Pension.
When you are completing the Age Pension Income and Assets form, on page 11 there is a question:
Do you (and/or your partner) own any shares, options, rights, convertible notes or other securities listed on a stock/securities exchange in and/or outside Australia?
So Centrelink wants to know what shares you are holding and the number of shares you own between you and your partner if you have one.
Centrelink will register the number of shares held with each company and Centrelink will automatically update the shares values as the price go up or go down with the market and update our Age pension accordingly.
Let’s look at share calculations in the way Centrelink does it.
Meet George, who owns the following stocks:
CBA 1000 shares at $100.94 per share = total value $100,940
BHP 1500 shares at $45.26 per share = total value $67,890
TLS 10,000 shares at $4.32 per share = $43,200
And let’s assume that Gorge also has shares of a hypothetical company ABC
ABC 1,000,000 share at $0.02 per share = $20,000
The total value of Gorge’s share portfolio is $232,030
As we know by now, Centrelink performs two tests – Income and Assets Test.
1. Assets Test:
Assuming that Gorge is a single homeowner, and those are the only assets he has that are subject to the Assets Test performed by the Centrelink office, he is eligible for the full Age Pension, as Gorge’s total assets are below the allowable for the full Age Pension of $301,750
2. Income Test
With the balance of $232,030 at the current deeming rates Gorge’s estimated deemed income is $157.00pf, which allows Gorge to be receiving the full Age Pension.
So based on the current share portfolio, under both Income and Asset Tests Gorge is eligible for the full Age Pension.
But let’s assume now that the ABC company was a great idea, and the share price has gone up from $0.02 up to $0.5. Gorge still has the same number of shares, but the dollar value has just increased dramatically. What impact would that have on his Age Pension payments?
First let’s review the new value of those ABC shares:
1,000,000 shares at $0.5 per share = $500,000
We all dream of such a great return on our investment, but now suddenly Gorge’s total share portfolio balance is $712,030.
This is an incredible increase in value of the estate, one that each one of us only dream about, but at the same time, Gorge would lose his Age Pension entitlement under the Asset Test.
Gorge’s assets now are above the cut off limit of $656,500, therefore he is no longer eligible for Age Pension.
This is obviously an extreme example, and one that doesn’t happen too often, but it is just to show you how Centrelink calculates those values.
Once shares have been disclosed, Centrelink knows on daily basis the value of your share holdings, so you don’t have to provide any updates.
Centrelink will know the new shares values, before you will even know them.
And this is why if you are a heavy share investor, your Age Pension can go up and down with the market movements and values of your shares.
I do hope I managed to explain how Centrelink office is calculating values of your shares and how your Age Pension gets adjusted.
In case you are still confused, you really need to understand the Centrelink Income and Asset tests as well as Deeming calculations. Alternatively, just simply get an advice if shares are appropriate investments for you in the first place, so feel free to book a meeting with me to discuss your situation.
By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement
