Part Age Pension and one partner eligible only
When talking about the Age Pension it appears that a situation when one partner is eligible, introduces a bit of confusion.
I already covered this topic in: “Age Pension when one partner is eligible”
If we add to the above issue additional Asset Test problem and only partial Age Pension eligibility, it seems that calculating Age Pension payment is not as easy as it should be.
Therefore, today I will explain the following scenario, which happens to be many clients coming to me for advice:
- only one partner is eligible due to age,
- clients have between $800,000 or $900,000 under means testing.
- Therefore only a small part Age pension is payable to one partner.
The question that I keep getting is how to calculate this small Age Pension in this situation.
I have received many emails, messages or even direct letters asking for this explanation.
Let’s meet Jane and Michael.
Jane is 60 years of age, while Michael is 67.
Their assets are as follows:
- Family home – $1mil
- 2 cars – $50,000
- Contents – $10,000 (Centrelink value only)
- Jane’s super – $200,000
- Michael’s pension account – $600,000
- Shares held jointly – $200,000
- Cash in bank jointly owned – $50,000
Total assets counted under the Assets Test by Centrelink – $910,000
Please keep in mind that today’s article is not about maximising Age Pension or any other financial planning improvements that I could recommend to this couple.
Today I am discussing only how Centrelink calculates eligibility for part Age Pension, when one partner is of Age Pension age, and the second partner is not eligible just yet, which is the case for Jane and Michael.
- Centrelink will count all your family assets, that are assessable in this situation:
- Family home is exempt from means testing
- Cars and contents are counted as disclosed, regardless who owns them
- Jane’s super is not counted as she is below the Age Pension age
- Michael’s pension is counted as full value and subject to deeming rates under the Income test
- Shares – the full value is counted, regardless of the fact that Jane owns 50% of shares
- Cash in bank – the full balance is counted as well
- The total value of assets counted is $910,000
- Centrelink will calculate the eligibility for Age Pension as if both partners were eligible:
- Assets test result – $7,990pa
- Income test result – $17,121pa (deemed income)
- Centrelink will decide on payment
As the Asset Test is the dominant test, reducing Age Pension the most, this is the outcome that Centrelink will apply to this situation.
therefore, the result applied is $7,990, but as explained before, this is the outcome for a couple.
Since only one partner is eligible, Centrelink will half the annual payment and Michael will be paid $3,995 as fortnightly payments of $153.65, which is a huge Age Pension reduction from the full eligibility – reduction by $17,882 pa.
There are many improvements that could be applied to this couple’s situation, and this is exactly what I do daily for my clients:
- Maximising Age Pension payments for Michael,
- Review of shares – is it the best to keep them under personal name? and if it is better to make changes, what tax consequences would be applicable and how to reduce any CGT.
- How to maximise superannuation benefits?
- What fees are paid to super funds?
- What components do Michael and Jane have in super fund? How will this impact any payments to their beneficiaries? Would any tax be payable? If yes, how to minimise tax and maximise the benefit payment to beneficiaries such as adult and independent children
- And consequently, how to deal with Age Pension reduction once Jane reaches age of 67. Would they lose Age Pension? What can be done to keep it
- And the most important questions of all – do they have enough money for life? Can they afford the lifestyle they would like to have? How can income and assets be structured to provide the most security and certainty for life?
Those are the questions that many people preparing for their retirement have, and a good plan should provide all the answers to those questions.
Financial plan is not only about choosing the best product or investments. This is just a small part of the plan, actually this should be the very last part of the plan, as the decision often comes out of the strategy recommended and not the other way around. If your plan does not provide answers to those questions, sorry but I believe it is pretty useless and waste of your money and your time.
If you would like to have this kind of detailed plan prepared for your retirement, book a meeting with me to discuss your retirement plans.
By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement
