Age pension assets test: 10 tips and traps to consider

Understanding how assets impact the pension is a challenge for retirees, and there can be costly and unnecessary mistakes made.

Fresh changes to pension assets tests have opened the door for more people to get more money from the government, but first they must navigate the complexity and confusion of means testing.

When the age pension rose on September 20, so did the assets test limits above which no pension gets paid. For a single homeowner it rose $11,000 to $667,500, of assessable assets and for couples it climbed to $1.003m, up $16,500.

Non-homeowners get higher thresholds still, but not as high as you might think, and the rules around assets, income tests, taper rates and deeming rates open doors to many financial strategies that deliver seniors more pension.

Almost 2.6 million Australians currently receive a full or part age pension, with another 773,000 on a disability support pension, and claiming every possible cent can become an obsession for some.

The Centrelink Financial Information Service provides free advice, education and calculations, but many middle-class seniors also benefit from professional tailored advice.

Pivot Wealth founder and adviser Ben Nash said the idea of maximising age pension payments was “perhaps a bit of a generational mindset”.

“When people are getting to pension age they have generally been working hard their whole working life, so of course they want to make sure they are getting what they feel they deserve for paying taxes for five or six decades,” he said.

“But it could lead to people making sub-optimal decisions.”

For example, pouring hundreds of thousands of dollars into unnecessary home renovations might overcapitalise the home, all for a relatively small improvement in pension income, Mr Nash said.

“If you do a half a million dollars of renovations on your property to access $5000 in age pension, you could be generating $25,000 of income having it sitting in a bank account, or $40,000 of income if having it sitting in a good share portfolio,” he said.

“It doesn’t add up from a numbers perspective.”

Here are 10 common strategies, tips and traps.

SPENDING OR SAVING?

Goldsborough Financial Services director Brenton Miegel said seniors were “always looking at what’s going to be of benefit when it comes to the pension side of things”.

People, particularly those close to getting a pension, can simply spend money to reduce their assessable assets, although this does not always make financial sense.

Mr Miegel said it was generally not worth “spending money for the sake of spending money”.

But it could make financial sense for people planning sensible renovations, he said.

“Travel seems to be the big one. They say ‘let’s have a couple of good big holidays and then reassess and look at eligibility for the age pension.”

Seniors spend big on travel in the lead-up to and early years of retirement. Picture: iStock

Crunching the numbers might provide clarity, Mr Miegel said. Having $100,000 in cash could deliver annual income near $5000, but if it was spent the pension benefit might only be $50 a fortnight, or $1300 a year, he said. “To me that’s not money well spent.”

HOME HELP

Homeowners have a much better deal than non-homeowners when it comes to accessing pension payments.

While non-homeowners get higher asset test thresholds, the difference is only $242,000 – well below the cost of a home today.

“If you can retire in your own home and be debt-free, that will help set you up for the long term,” Mr Miegel said.

Viridian Advisory executive advisor Clint McNally said his firm was increasingly seeing middle class people focus on age pension access rather than building assets.

“This includes the repayment of their home loan prior to retirement with an expectation they will live in that home for a longer period, preferring to stay in their own home and not releasing capital to fund retirement as the main residence is not means tested,” he said.

“We also see the expensive overseas trips in the years leading into age pension eligibility to reduce cash holdings rather than adding to their retirement assets.”

GREEN ENERGY BOOST

Wealth for Life Financial Planning principal Rex Whitford said turning a home green could deliver the double benefit of extra pension now and a better property to eventually sell.

“If you haven’t got solar panels and a battery, maybe do that,” he said.

“You are paying upfront for electricity before they jack the prices up even further.

“Make it a great place to live, and a battery makes good sense at this stage with the feed-in tariff dropping off as it has.”

CHASING CONCESSIONS

Mr Whitford said many age pension benefits were peripheral to the cash payments, and involved concessions for qualifying seniors.

Depending on where you live, there can be council and water rate discounts, cheap or free transport, energy bill discounts, lower motor vehicle registration costs, cheaper medicines and bulk-billed doctor visits.

The wealthiest Australians have too many assets to ever receive a pension, and Mr Whitford said the means testing impacted the middle classes, “those people who maybe retired with $1 million between them, had the big holiday, fixed up the house, and now they’re marginal”.

Seniors can get cheap medicines and other benefits even if they do not qualify for any pension, thanks to the Commonwealth Seniors Health Card that was recently expanded to make tens of thousands more Australians eligible.

CSHC recipient numbers jumped from 450,000 to 500,000 in the past year, according to Department of Human Services data.

Assets are not tested when assessing eligibility for the CSHC, only income – and the cut-off thresholds much higher than pensions at $95,400 of annual income for a single and $152,640 for a couple.

“Even wealthy people can get it,” Mr Whitford said.

FUNERALS AND GIFTS

Australians are able to prepay funeral costs or buy funeral bonds, which have a limit of $15,000, to lower assessable assets.

If a partner died suddenly you could have “a hell of a funeral, I suppose”, Mr Whitford said.

“He or she will never come back and haunt you then.”

Gifting is another strategy for moving smaller amounts of money away from pension means testing.

“The gifting rules are quite modest – $10,000 per financial year and $30,000 over a five-year rolling period.”

YOU CAN’T HIDE

“Don’t lie to Centrelink,” Mr Whitford said.

“They will find out, with the data crossmatching in this country,” he said.

“They are cross-referencing everything, and if you get caught, heaven help you because they’re going to want the money back.”

Withdrawing cash then burying it in the backyard or hiding in a drawer had become a loss-making strategy in the past couple of years as inflation surged, Mr Whitford said.

“Maybe it’s not a bad plan in times of low inflation, but inflation diminishes the purchasing power of every dollar you keep in a sock drawer,” he said.

YOUR STUFF IS CHEAPER THAN YOU THINK

Assessable assets – your car, home contents and other items – can reduce pension payments so do not overstate them to Centrelink.

Cars depreciate the moment you drive them out of the car yard, while Centrelink typically assesses contents at $10,000 unless otherwise informed.

Balancing assets and pension income may required professional advice. Picture: iStock

Centrelink only requires the second-hand value of household items, which is much lower than the replacement value or insurance value. Valuing assets at $10,000 instead of $20,000 can potentially deliver an extra $30 fortnightly.

USE A YOUNGER SPOUSE’S SUPER

Money held in superannuation is exempt from Centrelink asset and income testing until the fund member reaches the pension age of 67.

This allows some clever financial moves by couples where a pensioner’s partner is younger.

Hundreds of thousands of dollars can be transferred to the younger spouse’s super, effectively hiding it until they reach pension age. Planning may need to start early for this because of the gifting and superannuation rules.

DEATH OF A PARTNER

When one partner passes away, there’s a chance that the survivor’s changing status from a couple to a single for assets test purposes also kills their pension payment.

Goldsborough’s Mr Miegel said this was “possibly the most difficult issue to deal with”.

“All of a sudden the single person is getting no age pension at all, he said.

Their household pension income reduces significantly and their assets test and income test thresholds shrink to single-person levels, so it’s a good idea to think about the unthinkable and consider what happens financially if your partner dies.

Good financial planning and estate planning can help preserve pension payments by directing some assets to children and grandchildren through wills or superannuation, and the use of other financial products such as annuities and investment bonds.

THE SOLUTION

Advisers say the best strategy for people not yet retired is to build as big a nest egg as possible and retire without government financial help.

“If you end up in a position where you are a self-funded retiree and do not have to worry about Centrelink, that can be far less stressful,” Mr Miegel said.

“I would encourage people to build wealth for retirement … irrespective of the Centrelink outcomes.”

Originally published as Age pension assets test: 10 tips and traps to consider