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What is included in the Age Pension Assets Test?

What is included in the Age Pension Assets Test?

What is Age Pension
Currently in Australia there are well over 4mil retirees.

25% of retirees are drawing a full Age Pension, with approximately 7% not having any additional personal income. That is scary, especially if you are a single pensioner with no own savings at all.

But majority of retirees receive a part Age Pension and providing you have optimised your Age Pension entitlement, and you have maximised benefits of your private income streams, you might feel your income is OK.

The problem that I often see is that most retirees on part Age Pension, and those with no Age Pension support at all, do not really know the reason for reduction or removal of their entitlement. This is actually a very important piece of information. You should know precisely if you are missing out on your entitlement because of Assets Test (you have too much assets) or under Income Test (your income is too high).

Unfortunately, many retirees accept Centrelink decision as final and never question their eligibility, or even inquire of receive advice – maybe there is a way to improve your situation, optimise your Age Pension entitlement as well as improve your income from your private financial investments.

But in order to do this on your own, you really need to know the rules and which test affects you – is it an Income Test or the Assets Test and why, as everyone’s circumstances are different.

To understand the basics, have a look at this article Age Pension Explained, where I explained the Age Pension eligibility rules.

But let’s start with a bit of history first.

In January 2017 government introduced The Fair and Sustainable Pension Bill, which was advertised as the major review of Age Pension system, improvement of Assets Test and Income Test in order to assist the quality of life for Australian retirees and pensioners.

The asset threshold for full Age Pension benefit was increased by $171,500 therefore more retirees became eligible for the full Age Pension payment, and to be exact 50,000 part pensioners started receiving the full entitlement. And this is what the government was advertising to prove how much of the assistance it is providing to Australian retirees.

But at the same time, another change was introduced, with no advertising this time (I wonder why) – any assets above those threshold limits were no longer being reduced by $1.50 for every $1,000, but by $3.00, therefore the cut-off point happened at a much lower asset levels. Due to this change 236,000 pensioners had their Age Pension reduced and over 90,000 lost part Age Pension all together.

The government graciously allowed all pensioners who lost the benefit to be automatically eligible for a Commonwealth Seniors Health Card as a compensation, regardless of the level of income earned.

The outcome of this helpful change for pensioners saw a reduction of the expense for the government by $2.4 billion over the period of the following 4 years. Not bad, is it?

So let’s now review the current Asset Test Limit:

  • Single homeowner – 268,000 – $585,750
  • Single non-homeowner – 482,500 – $800,250
  • Couple (combined) homeowners – 401,500 – $880,500
  • Couple (combined) non-homeowners – 616,000 – $1,095,500

What assets are included in Assets Test

  1. Personal effects:
    • Motor vehicle – this would be the market value of your car, bike or whatever you have.
    • Household contents – please remember, it is not an insurable value of your contents, therefore not the value that is listed on your contents insurance policy. Centrelink wants to know your replacement value of your contents, so the value should you sell your possessions. In most cases the value between $5,000 – $10,000 is acceptable, so don’t overdo it.
    • Boats
    • Caravans
    • Antiques, jewellery – anything of a real sellable value.
  1. Financial Investments
    • Superannuation accounts. If you are a couple and both are of Age Pension age, both of all your accounts will be counted under Asset Test. If one partner is below the Age Pension age, then the Super Funds of that partner will be exempt under Income and Assets Tests. So this is a little hint for you, if based on age, only one person is eligible for Age Pension and you want to receive the highest benefit, keep as much of your family assets within your spouse Super Fund to reduce your assets for the Assets Test.
    • Pension income streams (e.g account-based pensions) – those types of income streams carry very special treatment under Income or Assets Test, depending on commencement date, so please take care when providing information to Centrelink, if in doubt, receive advice.
    • Annuities – those can create lots of problems for you to discover the actual asset value, as annuities have changed over the years and they could have a very juicy exemption for calculating asset or income in full or in part. It is very important for you to understand those annuities as otherwise you might miss out on the big benefit you might have and not even know about it.
    • All your other financial investments, such as cash in the bank, term deposits, check if any of your life insurance policies have surrender value, as this will also form part of the Assets Test.
    • Shares – that includes public listed and unlisted shares as well as shares in private companies.
    • Here is something new – Cryptocurrencies, I have not met yet a retiree who would own any of those assets yet.
  1. Real Estate
    • Real estate – that excludes your family home up to the first 2 hectares of land it is on. Please keep in mind that if you live on a farm, your property might be assessed differently and that will require a separate assessment.
    • any investment property you have or granny flat that is on the land that is not owned by you. If are thinking about the granny flat arrangement e.g. to live close to your kids on their land, please get a proper advice, as your Age Pension might suffer.
    • Any property you rent out
    • Any property that is vacant – eg. holiday home, un-used land. Sometimes I get asked, if I have 2 properties, one is worth a $1mil, the second $500,000 and I spend 50/50 time between them, can I choose which property to use as my family home? If this is the case and your truly spend a similar period of time in each property, then of course advice Centrelink of the higher value property as your family home. You can only have one family home, and the other property will be valued under Assets Test, but at least in this instance, you have the choice.
    • any property that you let another person to live in for free.
    • A very common question that I get is: If I own an investment property valued at $700,000 and have a loan against that property of $500,000, under Assets Test is the property valued at $700,000 or $200,000? The answer is that Centrelink will look at the net value of the property, so the value after any outstanding debt being deducted from the total value, hence in this example under Assets Test the property would be valued at $200,000. Just please make sure you get an advice as if holing such a property during your retirement is actually beneficial for your overall income outcome and not just Age Pension.

If you live in a retirement village, whether you are classed as a home owner or not and whether the value is included in Assets Test or not, depends on how much you actually paid as your entry contribution. That will need to be explained in another video, so please let me know in the comments below this video if this topic is of your interest.

  1. Gifting
    • Gifting limit is $10,000 in one financial year
    • Must not be greater than $30,000 over 5 financial years
    • Any assets of greater value to the above, is included in your Assets Test, even if you do not own this asset any longer.
    • There are some exceptions that are quite important to know, but it could be a topic for another video.
  1. Sole trader, partnerships, private trusts and private companies
    • Years ago it was so easy legally hiding assets from Assets Test, lots of people had private trust they used to control, but because assets ownership was within the trust, and not on personal name, those assets were not counted.
    • Times have changed, and now, this will no longer work, as Centrelink is calculating not only the assets you own, but assets you control as well, and this could be within a trust or a company structure. If this is you, take care and get a very good advice from a specialist in this area.
    • Any business assets are included in Assets Test

So here it is, we have gone over all necessary details of Asset Test.

I hope this article provided you with clear information and you feel more comfortable when speaking with the Centrelink office about your Age Pension entitlement.

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

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