The Australian Aged Pension scheme provides a wonderful safety net for those with limited assets in retirement, although many remain confused by how their age pension entitlements differ from so-called superannuation income streams.
The Federal Government provides an income for all Australians who reach pension age, currently set at age 67, who can prove they are an Australian resident and meet certain eligibility requirements including the income and the assets tests (means test) .
The rates and limits you may be subject to when calculating your pension eligibility vary depending on whether you are a homeowner or not and whether you are part of a couple. There are limits on the assets you have and deeming rules are in place which calculate an assumed rate of return on your investments.
In addition to the income from investment assets, you can also receive income from genuine employment under the Work Bonus scheme and still receive a full or part pension.
The asset and income tests provide generous limits for older Australians to qualify for the age pension, with most of the so-called loopholes for effectively ‘hiding assets’ from Services Australia having been closed or significantly reduced.
Importantly, the family home is excluded from the assets test, meaning a potential age pension recipient can have millions of dollars tied up in their own home and still qualify for the full-age pension, depending on the size of their remaining assets.
Concessions may be applied to properties that include land over 2 hectares if certain requirements are met.
A balancing act
For couples with a significant age difference, one strategy may be to move assets from the older partner into the younger partner’s superannuation account, where it won’t be included in the means test when determining the rate of the older person’s age pension.
As long as the younger partner is under the Age Pension age themselves and their superannuation account is still in accumulation mode or can still receive contributions, the assets held within that account will not be included when assessing the couple’s overall assets.
When moving funds from one partner to another, you may be able to contribute up to $110,000 in one financial year as a non-concessional contribution or $330,000 as a non-concessional contribution in any three-financial year period under the “three-year bring forward” rule, provided the Total Superannuation Caps are not reached.
With some simple planning, it is possible to distribute contributions from one partner to a younger partner in a relatively short timeframe and so reduce the assets included in the age pension means test accordingly.
These rules, though, are extremely complex and are best utilised under the guidance of a qualified financial planner to ensure you make the right decisions and avoid any costly mistakes.