Question 1

•  I have a defined benefit pension. My wife has an allocated pension. We also have shares in Australian companies. We are on a part pension. How does Centrelink determine how it calculates our part pension. It says they are based on income but cannot give us a breakdown.

It’s a bit strange that they can’t provide you with a breakdown.

Centrelink calculates a separate income and asset test, whichever provides the lower age pension will then be applied. Note that the principal home is not counted.

In my experience, most people are caught under the asset test – unless they are working or have a defined benefit pension, then quite often they move to being income tested.

For couples, all their income and assets are added together, regardless of whose name they are actually in.

Bank accounts, shares, and allocated pensions are treated as ‘financial assets’.

Under the asset test the current balance is counted. Under the income test they are ‘deemed’ (or assumed) to earn a certain rate of return, regardless of their actual rate of return.

In what was a win for pensioners, deeming rates were frozen for two years at low rates (this is set to expire June 30). For pensioner couples your first $100,200 is deemed to earn 0.25 per cent per annum, and anything above 2.25 per cent per annum.

As an example, let’s say your bank account, allocated pension and shares had a combined total of $200,200. Under the income test:

·       $100,200 x 0.25 per cent = $250.50

·       $100,000 x 2.25 per cent = $2250

So, under the income test $2500.50 would be counted.

With a Defined Benefit Pension, nothing is counted under the asset test. However, under the income test the full amount is counted, less any tax-free amount up to a maximum of 10 per cent.

For example, if you receive a $50,000 Defined Benefit Pension payment per year, and 15 per cent is the tax-free percentage ($7500), Centrelink will count $45,000 under the income test because it will cap the tax-free percentage at 10 per cent ($5000).

Question 2

• I am a 79-year-old male with an age pension. I am also gainfully employed as per the government requesting. Why is my pension being taxed, when I’m also incurring a 50 per cent penalty on every $1 I earn over $300 per fortnight. Not only that, but my non-working spouse has her pension halved. Surely that is double, if not triple, dipping. Now if I was to get my pension in full, I think that it would be fair to tax my pension but not the spouse.
• Also, if the age pension is taxable, why doesn’t Centrelink take out the tax at source? Why does one have to wait until submitting the annual tax form to find out how much tax should have been paid. For interest’s sake, my wages are not a set amount weekly and hence my fortnightly income report to Centrelink and pension received varies. Ian 

 Hi Ian,

Firstly, yes, the age pension is taxable and Centrelink does not withhold any tax. This is because the age pension payments on their own don’t create an income tax liability and therefore it depends on your other taxable income sources. 

If you are concerned by receiving a tax bill at the end of the year, you can elect that your employer does not take into account the tax-free threshold (this is done on the TFN declaration form).

In this way your employer will withhold a slightly higher rate of tax each pay, reducing the chance you will have a tax liability at the end of the financial year.

In relation to the income test, as a couple you can receive $360 per fortnight income with no reduction in age pension.

On top of this you can earn $300 per fortnight from employment, which again does not count under the income test.

Each dollar of income above $660 reduces the rate of age pension by 50 cents for singles, and 25 cents for couples (each).

There are continual calls to encourage senior Australians back (or to continue) to work and not have them penalised by reducing age pension payments.

However, there are already a number of incentives, as listed above, that need to be considered.

The government also needs to consider the sustainability of the budget.

As Australians age this puts more pressure on health care and welfare, and they would be weighing up how much of taxpayers’ funds should be used on age pension payments for those that are not in dire need.

Question 3

• Does the asset total include the value of your house when calculating whether you’re eligible for the pension?  

No. Your primary residence is not included in the asset test. 

If you or your partner has a right or interest in a principal home and that gives you reasonable security of tenure in the home, you are considered a home owner by Centrelink. 

The home does not have to be in your own name nor does the home have to be a permanent fixture on land. For example, the land title can be in the name of a company or trust and you can be living in a boathouse or caravan. 

Craig Sankey is a licensed financial adviser and head of Technical Services and Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.

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