As we start to think about retirement, one of the first questions many of us ask is "Will I qualify for the Age Pension?". To help you understand your eligibility, we outline the basic thresholds that apply under the different means tests and what types of assets and income sources are included.
Knowing whether you'll be entitled to the Age Pension is an important pat of your retirement planning. Once you reach Age Pension age (66 years from 1 July 2019), you'll also need to pass two tests: the assets test and income test. If your eligibility works out differently under the two tests, the less favourable result applies.
If you own your own home, to qualify for the full pension your "assets" must not be worth more than $258,500 (for singles) or $387,500 (for couples). For non-homeowners, these limits are $465,500 and $594,500.
Above these thresholds, you may qualify for a reduced pension. However, your entitlement to the pension ceases if your assets are worth more than $567,250 (for single homeowners) or $853,000 (for couples). For non-homeowners, these limits are $774,250 and $1,060,000.
"So, what "assets" are included? All property holdings other thank your principal home count, less any debt secured against the property."
There are also special rules for granny flat interests and retirement home contributions, so get advice before moving into these accommodation options.
Investments like shares, loans and term deposits or cash accounts all count, as do your share in any net assets of a business you run and part of the market value of assets in any private trusts or companies you're considered to "control".
And once you reach Age Pension age, your superannuation is also included. This includes your accumulation account and most income stream accounts.
How you structure your investments could make a big difference. Consider the following tips:
Selling the family home can significantly impact your assets test position. For example, if you sell and put the proceeds into superannuation, that wealth will become subject to the assets test.
Paying more off your home mortgage may improve your assets test position. For example, if you meet a condition of release you might consider withdrawing some superannuation benefits and using these to pay down your mortgage.
Be careful when "gifting" away assets, including selling assets to your children below market value. The value of gifts in excess of $10,000 in a financial year, or $30,000 across five financial years, will count towards the test.
In any case, before changing your asset structure you should ask: does it make financial sense to rely on the Age Pension? You may be better off building investments that will generate a higher income for you in retirement.
If you earn up to $172 per fortnight as a single (or $304 as a couple), you can potentially receive the full pension. Above this, your pension entitlement will taper down before ceasing at income of $2,024.40 per fortnight for singles and $3,096.40 for couples. A "Work Bonus" allows pensioners to earn up to $250 from employment per fortnight without it affecting their pension.
The income test is broad and includes any gross amounts you earn from anywhere in the world. As well as your income from employment (above the Work Bonus) or business activities, the test also includes things like investment income (eg dividends, trust distributions and rental income), superannuation income streams and even a share of the income in any private trusts or companies you "control".
Your income from certain financial assets is "deemed" at a certain rate. If your actual earnings from these investments exceed the deeming rate, the excess doesn't count towards the income test. The deeming rule apply to assets like listed shares and managed investments, savings accounts and term deposits, and many superannuation accounts.
Plan for a secure retirement
Contact us to start your retirement planning today. We'll advise you on the most beneficial way to approach your income from superannuation, the Age Pension and other investments to help you achieve the best retirement income.