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If you have started drawing down on your super for income, or if you have withdrawn a lump sum and spent it, it may be a good idea to update your figures with Centrelink.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.
See more topics from our Financial Knowledge Centre »
This report is prepared by Bridges Financial Services Pty Limited ABN 60 003 474 977 AFSL 240837 (Bridges). Bridges is an ASX Market Participant and part of the IOOF group of companies. This report is prepared by the IOOF Research team for: Bridges Financial Services Pty Limited ABN 60 003 474 977 AFSL 240837, Consultum Financial Advisers Pty Ltd ABN 65 006 373 995 AFSL 230323, Elders Financial Planning ABN 48 007 997 186 AFSL 224645, Financial Services Partners ABN 15 089 512 587 AFSL 237 590, Millennium3 Financial Services Pty Ltd ABN 61 094 529 987 AFSL 244252, RI Advice Group Pty Ltd ABN 23 001 774 125 AFSL 238429, Shadforth Financial Group Ltd ABN 27 127 508 472 AFSL 318613 (‘Advice Licensees’). The Advice Licensees are part of the IOOF group comprising IOOF Holdings ABN 49 100 103 722 and its related bodies corporate (IOOF group). The Advice Licensees and/or their associated entities, directors and/or employees may have a material interest in, and may earn brokerage from, any securities or other financial products referred to in this document or may provide services to the company referred to in this report. The document is not available for distribution outside Australia and may not be passed on to any third person without the prior written consent of the Advice Licensees. The Advice Licensees and associated persons (including persons from whom information in this report is sourced) may do business or seek to do business with companies covered in its research reports. As a result, investors should be aware that the firms or other such persons may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as a single factor in making an investment decision. The document is current as at the date of issue but may be superseded by future publications. You can confirm the currency of this document by checking the intranet site (links below). The information contained in this report is for the sole use of advisers and clients of AFSL entities authorised by the Advice Licensees. This report may be used on the express condition that you have obtained a copy of the Advice Licensees Financial Services Guide (FSG) from their respective website. Disclaimer: The information in this report is general advice only and does not take into account the financial circumstances, needs and objectives of any particular investor. Before acting on the advice contained in this document, you should assess your own circumstances or seek advice from a financial adviser. Where applicable, you should obtain and consider a copy of the Product Disclosure Statement, prospectus or other disclosure material relevant to the financial product before making a decision to acquire a financial product. It is important to note that investments may go up and down and past performance is not an indicator of future performance. The contents of this report should not be disclosed, in whole or in part, to any other party without the prior consent of the IOOF Research Team and Advice Licensees. To the extent permitted by the law, the IOOF Research team and Advice Licensees and their associated entities are not liable for any loss or damage arising from, or in relation to, the contents of this report. For information regarding any potential conflicts of interest and analyst holdings; IOOF Research Team’s coverage criteria, methodology and spread of ratings; and summary information about the qualifications and experience of the IOOF Research Team please visit ioof.com.au/adviser/investment_funds/ioof_advice_research_process.