How Centrelink assesses assets for Age Pension?

How Centrelink assesses assets for Age Pension?

To deem or not to deem – that is the question.

As I keep on receiving this question all the time, I thought today we will go over different asset types and explain what assets are subject to deeming by Centrelink for the purpose of assessment of your Age Pension eligibility and how Centrelink deals with assets that are not deemed.

It is crucial for you to understand the different treatment and assessment by Centrelink, so you can prepare yourself in the best possible way with the most appropriate assets. 

Based on many questions that I receive, I see that this is a major issue for many, which assets are subject to deeming and which are not? And if some assets are not deemed, how are they assessed? 

I understand it can be confusing, so let’s go over this information asset by asset to make the understanding and decision easier for you.

1. Family home – your principal residence 

You might think, this is one asset that is just easy and straight forward. Well, in most cases it is, as home is usually an exempt asset from Income and Assets Tests, so it is one asset we really like, as it can be worth lots of money and yet not impact your Age Pension payments at all.  

But sometimes it isn’t and you better be well prepared for such eventuality. For full explanation about when your home might be subject to those tests, watch my video: Is my home always exempt for Age Pension 

2. Cash in bank  

Cash in your bank account is subject to deeming rules. But I still get many questions that are showing that deeming is misunderstood. So let’s explain what deeming actually is and how it works.  

Deeming is the assumed rate of return on the value of your asset. The easiest way to explain is with some examples: 

Steve is a single pensioner that has $100,000 in his bank account and he wonders how Centrelink would count his bank savings under deeming rules.  

For singles – the first $56,400 is deemed to earn 0.25%, therefore $141.00pa, and the balance over that amount 2.25% therefore $981.00pa . So the total deemed income for Steve is $$1,122pa.  

Now let’s meet David and Louise, who also have $100,000 in bank account. Being a couple, the deeming rules are a bit different, as their deemed income on the first $93,600 is deemed at 0.25%, therefore $234.00pa and the balance of $6,400 is deemed at 2.25%, which is $144.00pa.  

Therefore, as a couple, their deemed income from $100,000 is $378.00pa.  

But what does it really mean in practice?  

It means if your $100,000 earns less that the calculated deeming rates, that’s our bad luck, Centrelink will still count that level of return, whether you earn it or not. If you don’t, well, pick up your game and get the right return on your money.  

So you might think it is a negative, but, let’s turn this around, if you are smart and you can get a return of 3%, 4%, 10% or whatever, this is your good money management (of course, don’t go crazy with the financial risk), but from the point of view of the Asset Test, Centrelink will let you earn this return without panelising you for being smart and getting higher returns than deeming rates.  

For more information about Deeming Rates, just watch this video: Age Pension Deeming Rates – UNFAIR RULES 

3. Shares 

From the perspective of the Age Pension assessment, your shares are also subject to deeming rates, and this is a great example of an asset, where you are able to earn a much higher income than just deeming rates, and yet you are not penalised for it. But beware, if you start reinvesting those dividends and grow the underlying asset, it will increase its value, therefore will impact you Asset Test. And once your asset increases in value so will the Income test.  

4. Superannuation  

Any money in super is also subject to deeming rates once you are pass the Age Pension age. The only exception is the super balance that you have with your younger spouse.  

And by younger, I mean below the Age Pension age, where the super balance is fully exempt and not counted under both Income and Assets Test.  

I have so many videos about investing into super, you can learn a great deal about super contributions and various strategies using super. Just check my playlist for the subject of superannuation and retirement investing. 

5. Income Streams – such as Account Based Pensions 

In most cases ABP is also subject to deeming rules, but if you have a pension fund that commenced before 1st January 2015, please hold on to it, don’t move it, don’t rollover, please do not do anything until you receive the full advice. This could be your little jewel that can assist with Income Test in a long run.  

6. Define Benefit Pension 

As this type of a pension fund does not have the withdrawal value, Centrelink is not including it in the Assets test, however it is most certainly included in the Income Test and in most cases it is on the basis of dollar per dollar, hence if you are receiving $50,000, this is exactly what goes on your Income Test for the purpose of calculating your Age Pension entitlement.  

7. Holiday homes  

If you own another property and you use it as the family holiday house, then the Age Pension treatment is easy. Your property is counted under the Assets Test, but not the Income Test. 

8. Investment Property 

If you own and investment property, in most cases Centrelink will conduct their own property valuation. The full property value is use in the Assets Test. Under the Income Test, if the property is rented, in most cases 75% of property rental is calculated as your income under the Income Test.  

This could be increased for example by your mortgage repayments. For information you need about the property and its impact on Age Pension, watch this video: Is property a good investment in retirement?  

9. Overseas Pensions 

It really makes no difference where your overseas pension comes from, UK, Canada or India, your pension from your original country counts and can reduce your Age Pension.  

And you don’t really have a choice, Centrelink will force you to apply, otherwise they can cancel your Australian Age Pension altogether. And in most cases they count it as $ per $, meaning that if you receive $1,000 of overseas pension, that will be counted exactly as $1,000 under the Income Test.  

But please remember that overseas pension income will vary from payment to payment due to changes in the currency exchange.   

 10. Cars and other belongings  

Those assets, just like your home contents or your cars or trailers are subject to Assets Test only and no Income Test, as there is no income being derived from them.  

 11. Annuities  

Those have a special Centrelink Income and Assets treatment, depending on the commencement date, so I am not going over the full list. You really need to speak with a financial planner to understand annuities and how they can help you to improve your Age Pension. For more details, just watch: Annuities and your Retirement

I think I covered majority of financial assets and non-financial assets we own that can impact Age Pension, but if you are still confused or just simply want the best outcome, just contact me for a chat. 

By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement