Age pension rules confusion hits many nearing retirement

People nearing retirement may be pleasantly shocked to know couples can have more than $1m and still get a pension. So are pension limits too generous? Take our poll.

More than three out of five Australians approaching retirement do not understand whether they will be eligible for an age pension.

This potentially leaves them working longer than they need to, or worrying unnecessarily that their nest egg is too small, retirement saving specialists warn.

They say many people do not realise how generous and flexible the age pension rules are, with a couple retiring today able to have more than $1 million in assets – plus their family home – and still receive some government money.

New research by Colonial First State found just 38 per cent of Australians aged 50 to 64 understand their age pension eligibility, and only 37 per cent understand how to access the pension.

“It’s not surprising, particularly when you consider that less than one in three understand retirement planning or how their life might change in retirement,” Colonial First State head of technical services Craig Day said.

“People are often surprised that they can have a substantial amount of income and/or assets and still receive at least a part age pension,” he said.

MBA Financial Strategists director Darren James said many people nearing retirement were confused about commentary around whether their home was counted in pension assets tests, “or you can’t have money in the bank or can’t have any income to be eligible”.

“They are floated around and none are correct,” he said.

Mr James said getting good advice was vital, and strategies for older couples could potentially have a huge impact on pension payments and income.

“If you have a younger spouse, you have the ability to shelter assets in superannuation and make yourself more eligible than you otherwise would be,” he said.

Money held in super is effectively hidden from Centrelink means testing until age 67, so a couple with a younger partner can potentially put a large chunk of the pension-age partner’s money into the younger person’s super.

“People don’t realise they can do that – it’s never too late to seek advice,” Mr James said.

He said people should research their options and consider using calculators at servicesaustralia.gov.au and my.gov.au.

“The simple fact is even if you are in a fortunate position to not be eligible for an age pension (because you have too many assets), it’s highly likely that you will still be eligible for a concession card of some description.”

For example, the Commonwealth Seniors Health Card that provides cheap medicines and other benefits does not have an assets test – only an income test where a single must earn below $95,400 and a couple below $152,640 a year.

Advice is vital for middle-aged Australians wanting a comfortable retirement. Picture: iStock

Colonial First State’s Mr Day said the key factors impacting peoples’ pension eligibility were:

• Being age 67 or older.

• Being an Australian resident, generally for more than 10 years.

• Meeting the income and assets tests.

“If we look at the income test first, a single person can have income up to approximately $63,000 per year and still receive a part age pension whereas a couple can have income just over $96,000 combined per year and still receive a part age pension,” Mr Day said.

“Under the assets test, different thresholds apply depending on whether they are a homeowner or non-homeowner, with higher thresholds for non-homeowners,” he said.

“If the person is a single homeowner, the value of their home doesn’t count as an asset, and they will receive at least a part age pension if their assets are below $674,000. For single non-homeowners, the cut off threshold is $916,000.”

Originally published as Age pension rules confusion hits many nearing retirement