Pension rates are rising. Here’s how retirees can maximise their cut

The quarterly age pension adjustments have been announced, and thanks to inflation, all pensioners will receive an income boost.

The pension system can be confusing because there are three changes each year: in July the asset and income thresholds are adjusted, while in September and March the pension payment amounts are updated.

Sitting down and running the ruler over your pension entitlements is well worth the time.Credit: Istock

You can download the latest pension charts and use the updated age pension calculator and deeming calculator on my website.

The single pension has increased by $4.60 a fortnight and the couples pension right by $3.50 per fortnight each.

When the pension rate increases, the upper threshold for eligibility rises as well. The new cut-off point for a homeowner couple is $1,047,500 – for a single homeowner it’s now $697,000.

Most wealthier pensioners are asset-tested, yet I keep receiving emails from them asking if they’re allowed to earn extra income. The answer is yes, if you’re asset-tested, the income test does not apply.

It’s far less costly to sort things out at the start than to try and fix them later.

A single pensioner with $560,000 in assets, who will now receive $411 a fortnight, could earn up to $43,000 a year, including deemed and employment income, without affecting their pension because they remain asset-tested.

Your home is not assessable, but your furniture, fittings and vehicles are. Many pensioners mistakenly value these at replacement cost, which can be costly. Every $10,000 in excess assets reduces the pension by $780 per year, so it’s important to value these items at garage sale prices, not replacement cost.

There is no penalty for spending money on holidays, living expenses or home renovations. However, doing so purely to increase your pension is not a smart financial strategy.

For example, if you spend $100,000 on renovations, your pension may increase by just $7800 per year, meaning it would take nearly 13 years to recover the cost. That said, the benefits of improving your home or travelling should also be considered. The key is to spend wisely, rather than simply trying to boost your age pension.

Each year on March 20and September 20, Centrelink revalues market-linked investments, such as shares and managed funds, based on the latest unit prices.

These investments are also revalued when you report a portfolio change or request a revaluation. If the value of your investments falls, your pension may increase, whereas if the value rises, your pension may decrease.

The rules favour pensioners. If your portfolio increases due to market movements, you don’t need to notify Centrelink - it will be adjusted at the next six-monthly revaluation. However, if your portfolio falls, you can notify Centrelink immediately, which may result in an increase in your pension sooner.

The devil is in the detail. If one member of a couple has not yet reached pension age, it can be prudent – where appropriate – to keep as much superannuation as possible in the younger person’s name.

Superannuation in accumulation mode is exempt from Centrelink’s asset test until the account holder reaches pension age. The moment it moves into pension mode it becomes assessable, regardless of age.

A common trap arises when a loan is used to buy an investment property, but the mortgage is secured against the pensioner’s own home. Centrelink does not deduct the debt from the investment property’s value unless the mortgage is held against that property.

If the mortgage is secured against another asset, such as the family home, the full gross value of the investment is assessed for the assets test, while the loan is not deducted. This can have a severe impact on pension entitlements.

Centrelink also limits gifting to $30,000 over a rolling five-year period, with the $10,000 per year allowable limit. Any excess is treated as a deprived asset for five years.

Time and again, we hear of pensioners in failing health giving away assets to family, hoping to experience the joy of generosity while still alive, only to later realise this act has cost them much of their pension.

Unfortunately, space constraints mean we can only scratch the surface today, but these examples highlight the importance of seeking expert advice before making major financial decisions.

As the saying goes, “birth is easier than resurrection” – it’s far less costly to sort things out at the start than to try and fix them later.

Noel Whittaker is the author of Retirement Made Simple and other books on personal finance. Questions to: [e-mail]

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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