Putting off applying for the pension? It could cost you $20,000

Are you a procrastinator, struggling to find the time and motivation to get around to something that’s important? You’re not alone, especially when it comes to retirement income.

According to research conducted by Retirement Essentials and Link Advice, 32 per cent of Australians apply for the age pension at least a year later than they could have. On an individual level, this may amount to missing out on as much as $18,480 per person.

Each year Australians collectively miss out on $3 billion in pension entitlements, and there’s no way to get that money back.Credit: afr

The full pension pays $29,754.40 for singles and $44,855.20 for couples (combined) as well as Commonwealth Rent Assistance where applicable. The Pension Concession Card (PCC) is automatically awarded to those who qualify and is worth a further $2000-$3000 in discounts and benefits per annum.

Spread across the “about to retire” population, these late applications add up to a huge amount. Based on the same research which shows the average delay costs $16,800 per person over 12 months, when this amount is applied to the 150,000 people who apply for a pension each year, it becomes a staggering $3 billion in lost entitlements.

If all Australians applied on time, this shift in entitlements paid would have a major impact on government funding that year – and possibly even future policy settings.

The fact for those who delay applying is that this money is not recoverable. The result is also a negative in terms of the savings of those who are tardy.

At some stage, it’s likely you’ll qualify for the pension, so keep an eye on your eligibility.

Not only are they filling the gap in income by withdrawing more from their super, but from the very beginning of their retirement, they have reduced their savings which could have increased, through earning compound interest at a much higher rate, across their total retirement journey.

Why does this happen? There are many reasons, according to Jeremy Duffield, director of Retirement Essentials. These include:

• Procrastination
• Fear attached to the process
• Uncertainty about benefits
• Misunderstanding of how entitlements work

Such delay is very costly, says Duffield. “If there was any one lesson, don’t delay. If you don’t know if you’re eligible, ask. If you need help, get it.”

“The rewards from the pension are worth the effort. It can be worth a million dollars over a lifetime, depending on your circumstances. And delays and misunderstandings can cost you tens of thousands of dollars,” he says.

The fear of dealing with Centrelink is another major factor – one which is very entrenched. This fear has become harder than ever to dismantle following robodebt wrongdoing and the subsequent royal commission which revealed the full extent of poor customer management.

Add to this significant staff cuts by previous governments and the well-documented wait times and call “drop-outs” for the 43 million or so calls to Centrelink each year, and it’s unsurprising that some Australians simply give up before they even begin.

Another factor which may be influencing delayed applications is the complexity of our retirement income system. Australia’s system still ranks in the top 10 in the world, according to the most recent Mercer CFA Institute Global Pension Index rankings for adequacy, sustainability and integrity.

Sadly, a robust system is not sufficient. The calculations required to combine pension eligibility and benefits with a retirement income stream, with perhaps private savings or an annuity layered over the top, simply defeat most people.

Yes, pre-retirees are encouraged to seek financial advice, but a comprehensive plan will cost from $4000 to $6000, and the value of such an upfront investment is difficult to discern, let alone afford, for those on low incomes.

How can ordinary wage earners cut through? Here’s a three-step checklist to ensure you don’t apply late and miss out on entitlements:

1) Use a calculator to check your likely pension payments in retirement (many super funds have free tools available online).

2) If you are within a few thousand dollars of qualifying, start as soon as you can. You can apply from 13 weeks before you turn 67.

3) Be aware that 80 per cent of Australians will receive pension benefits at some stage in their lives. Remember that this benefit is not backdated if you apply late.

Keep an eye on your assets as they are spent down during your retirement and use the free calculators to keep a close check on your potential eligibility. At some stage, it is likely you’ll qualify, and you don’t want to miss out.

• 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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