Finance Your Budget Ask the Expert: How our spending habits affect the age pension
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Ask the Expert: How our spending habits affect the age pension

financial-planning
Licensed financial adviser Craig Sankey answers your burning finance questions. Photo: TND
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Question: Hi Craig, We are retired pensioners, and are not sure what our correct age pension amount should be. We have a total of $500,000 in super and $30,000 in assets. We haven’t as yet used any of this super, as we’re not sure the best way to go about this situation.

We are currently receiving $500 a fortnight each from the age pension. Is this the correct amount? How can we increase this amount and not lose any more pension? Also, are financial planners expensive? Thanks Sharon

Answer: Thanks for your question, Sharon.

Based on your level of assets, I calculate you would be ‘asset-tested’, rather than ‘income-tested’. This simply means that Centrelink applies the test that gives you the lower amount of age pension, and under this scenario it appears the asset test would apply.

Given the information provided, I assume you are also a home owner, as this nearly lines up with the $500 a fortnight that both of you are receiving from the age pension.

I calculate that you should be receiving slightly more than this, approximately $519 per fortnight, but this figure includes pension and energy supplements.

The discrepancy suggests that Centrelink may have inaccurate or out-of-date information on your account balances. I suggest you confirm this with them.

If you have assets, excluding your home, worth more than $401,500, then your age pension is reduced by $3 per fortnight (couple combined) for every $1000 over this amount, until your assets reach $876,500, where your age pension entitlements reach zero (as at December 2020).

So, in your situation, for every $1000 you spend you will receive an additional $3 in fortnightly age pension.

However, I suggest you only spend your money on what you need or what you would enjoy, rather than spending money solely to obtain additional age pension.

These days there are limited other ways in which to increase your age pension. You could look at purchasing a funeral bond of up to $13,500 each (2020-21 threshold), as these are exempt under the Centrelink asset test.

Once you are over age pension age, commencing an income stream from your super will not have an impact on your Centrelink age pension, as the assets are treated the same as when they are in the accumulation phase.

Commencing an income stream from your super can provide you with regular cash flow throughout retirement, which can supplement the age pension you are currently receiving.

When you are ready to commence an income stream, you could look to invest some into a guaranteed lifetime annuity that provides some Centrelink benefits.

However, I would suggest obtaining tailored financial advice before doing so.

Note, too, that if you’re a non-home owner, the above thresholds do not apply.

And given your level of assets, you would be eligible for almost the full amount of age pension, with possibly a very small reduction due to the income test.

Craig Sankey is a licensed financial adviser and head of Technical Services & 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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