Age pension increase: No worries even if you have $1m in assets

March’s age pension rise comes with a more generous assets test that allows more millionaires to receive social security benefits.

The age pension has increased this week and for many Australians it’s more than a government cash handout.

It provides access to cheaper medicines under the Pharmaceutical Benefits Scheme, plus concessions on bills, transport and other household costs.

Seniors only need to receive $1 of age pension to qualify for these extra benefits, and the latest pension rises come with an extra bonus for retirees who many would consider are well-off.

Retiree couples can be millionaires – or multi-millionaires if they own an expensive home – and still get some pension plus its associated benefits. This might seem wrong, but before you grab your pitchforks it’s worth taking a closer look at the system.

The March 20 pension changes raise the assets test threshold for a homeowner couple from $891,500 to $901,500. That means if they own $900,000 of super and other assets they will still qualify for benefits.

The assets test threshold doesn’t include their own home – which is exempt from the assets test and could have unlimited value.

A couple non-homeowner can now have $1.12 million of assets before they lose eligibility for a part pension, while a single non-homeowner can have $816,250 and a single homeowner $599,750.

The property boom has bred many new millionaires, often older Australians who live in larger homes in established suburbs.

High-five for happy seniors: the pension rules are more generous than many think.

Some people have argued there should be a limit to how much of a home should remain exempt from the pension assets test. But good luck to any government that wants to tell retirees they have a choice of selling their home or losing their pension.

Other critics say letting people have almost $1 million of assets and still get paid the age pension “safety net” is silly.

However, we should remember that self-funded retirees have been among the hardest hit by the surging cost of living, combined with almost zero interest rates paid on the bank deposits that used to fund their everyday spending.

While a decade ago a $1 million bank balance would have paid income of around $70,000 a year, today it pays less than $20,000.

The Association of Superannuation Funds of Australia says a couple needs to spend $64,771 a year for a comfortable retirement, and a single $45,962.

On Monday the total age pension for a single person rises $20.10 per fortnight to $987.60, or $25,677 annually. Each member of a couple gets $15.10 per fortnight extra to a total of $744.40, which is $38,709 a year.

That’s still a long way from those comfortable retirement levels, so most retirees use a combination of pensions, super and other assets such as shares and property to get by.

Some seniors think they deserve an age pension after they have paid income tax during their working lives, but the self-funded retirees most likely paid much more tax to the ATO over many years.

Independent reviews have projected pension payments in the decades ahead, and found that while they won’t disappear, they will be relied upon less as future retirees benefit from a full working life of compulsory super.

In the meantime, there’s nothing wrong with being a millionaire and still getting some age pension and other seniors’ benefits.

Tightening the rules too much would be unfair on those who spent their lives building a nest egg so they don’t have to fully rely on social security.

Originally published as Age pension increase: No worries even if you have $1m in assets