If you receive Age Pension payments, you probably know that these are calculated using Centrelink’s asset and income tests.
But did you know that this assessment isn’t set and forget?
If you’re not regularly updating your income and assets with Centrelink, you could be missing out on income for your retirement.
We cover some reasons why.
You’re drawing down on your retirement savings
Your retirement savings may be one of the biggest financial assets you have, and changes to your super balance can have a big impact on the outcome of your assets test calculations.
If you have started drawing down on your super for income, or if you have withdrawn a lump sum and spent it, it may be a good idea to update your figures with Centrelink. With the cost of living continually increasing, your retirement savings may have reduced more than you realised.
Market falls have lowered the value of your investments
Between supply chain issues arising from the pandemic, a war in Eastern Europe, and the hit to investor confidence caused by rising interest rates, share markets have been rattled by global events in recent times. While no-one wants to see the value of their investments decline, a downturn in your investment portfolio (and therefore assets and income) could affect your Age Pension eligibility.
Even though your investments are automatically revalued twice yearly1, that doesn’t mean you can’t be proactive and ask for them to be reassessed ahead of time. Especially after a market downturn, you don’t want your pension to fall because the government is using dated information about the value of your assets.
The value of a major lifestyle asset has declined
The assets we buy can sometimes depreciate in value quite quickly. Motor vehicles, for example, can depreciate in value the moment you drive them out the dealership, and in just the first year you can expect your car’s resale value to drop by as much as a third2.
When it comes to lifestyle assets such as cars, boats and caravans, Centrelink doesn’t automatically apply a rate of depreciation, which means that the assets you own could become increasingly over-valued as time goes by. For this reason, you should make sure what you report to Centrelink accurately reflects the value of the assets you have.
You’re missing out on opportunities to maximise income from financial assets
Centrelink uses deeming rates to estimate the amount of income you earn from financial assets, such as cash, shares, bonds, managed investments, superannuation and most account-based income streams. The deeming rates apply regardless of what you actually earn.
While interest rates on things like savings accounts and term deposits have gone up, deeming rates will remain the same until 30 June 2024:
For singles, the deeming rate is:
- 0.25 per cent on the first $56,400 of financial assets
- 2.25 per cent on anything over $56,400
For couples where at least one person gets a pension, the deeming rate is:
- 0.25 per cent on the first $93,600 of combined financial assets
- 2.25 per cent on anything over $93,600
For couples where neither person gets a pension, the deeming rate is:
- 0.25 per cent on the first $46,800 of each of your own and your share of joint financial assets
- 2.25 per cent on anything over $46,800
If you have assets earning more than 2.25 per cent in interest income, any income above the 2.25 per cent deeming rate won’t be counted by Centrelink for Age Pension purposes. That means that the rate of income on your investments can increase without affecting your income test calculation.
Your assets may fall just outside of Centrelink’s thresholds
If you don’t currently qualify for Age Pension payments, it may be worth checking to see just how close you are to the relevant assets threshold. For example, the part-pension cut-off point for homeowner couples (not separated by illness) is currently a combined asset value of $954,000 (excluding their home). If you find that your combined assets are just above the part-pension cut-off, it might be worth considering reducing the value of your assets so you can access a part Age Pension and benefits such as the Pensioner Concession Card.
There are a few ways you might be able to go about this. For example, you might consider pre-paying funeral costs or renovating your home. These are just some ideas — of course, your decision will depend on your own personal circumstances and plans for your retirement.
Greg Burton is an accredited FPA Aged Care Specialist. Contact Carrick Aland’s award-winning Wealth Planning team on 1300 466 998 or visit carrickaland.com.au/wealth-planning/.
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