The data from the ‘Super is delivering for people about to retire’1 research paper indicates, that 45% of 66 year old Australians are receiving the Age Pension. A lot of Centrelink clients who are not yet Age Pension age have the opportunity to both; implement strategies to maximise their entitlements today, and to start planning for their transition to Age Pension to ensure they continue to maximise their benefits.
This article will focus on considerations for clients:
- transitioning from certain income support payments to Age Pension;
- who can leverage some strategies to help maximise their entitlement; and
- to continue to optimise their concession card benefits.
Transitioning to Age Pension
Some clients may already be receiving Centrelink income support payments just before reaching Age Pension age. These can include JobSeeker Payments (JSP), Carer Payment or Disability Support Pension (DSP). Clients reaching Age Pension age will stop receiving JSP and those receiving Carer Payment or DSP will have to opt between continuing those payments and Age Pension.
Table 1: Age Pension age
|Date of Birth||Pension age|
|1 January 1949 to 30 June 1952||65 years|
|1 July 1952 to 31 December 1953||65 years and 6 months|
|1 January 1954 to 30 June 1955||66 years|
|1 July 1955 to 31 December 1956||65 years and 6 months|
|On or after 1 January 1957||67 years|
JSP is available while your client is unemployed and looking for work or doing approved activities to find a job. JSP recipients may include those who may have been made redundant or clients who may find it difficult to seek work as they near their retirement. However, they are no longer eligible to receive JSP once they reach Age Pension age and will transition automatically to Age Pension (subject to an income and assets review). This is the case even if they wish to continue working after Age Pension age.
Carer Payment/Disability Support Pension or Age Pension?
Clients receiving Carer Payment or DSP cannot receive Age Pension simultaneously. 13 weeks before a client reaches Age Pension age, Services Australia will contact them to report whether they would like to continue receiving their existing payments or switch over to Age Pension. If a client does not make an election, they will transfer automatically to Age Pension (subject to an income and assets review).
Similarities between Age Pension, Carer Payment and DSP for recipients once they reach Age Pension age include:
- Same rate of pension;
- Same income and assets test thresholds;
- Work bonus applicable;
- Receive Pensioner Concession Card (PCC); and
- Payments are taxable (less energy supplement and tax-exempt supplement).
Carer Payment (where care receiver is also less than Age Pension age) and DSP are not taxable for someone less than Age Pension age, so clients may see an increase in their assessable income for tax purposes when they reach Age Pension age. However, there are also some differences that clients need to consider.
Table 2: Considerations for Carer Payment/DSP receipts deciding whether to transfer to Age Pension
|Consideration||Carer Payment||DSP||Age Pension|
|Additional means testing.||Additional means testing for care recipients may apply.||N/A||N/A|
|Additional ongoing reviews to continue receiving payments||Ongoing care and reviews required.||Ongoing medical reviews required.||N/A|
|Rent assistance (singles sharing privately rented accommodation)||Higher rate payable as compared to Age Pensioners.||Higher rate payable as compared to Age Pensioners.||Lower rate payable as compared to Carer Payment or DSP recipients.|
|Travel overseas||Payment ceases immediately if carer and/or care receiver leave permanently2. Payment may generally cease after 6 weeks if carer and/or care receiver leave temporarily.||
Payment ceases immediately if leaving permanently3. Payment ceases if overseas temporarily for more than 28 days in a 12-month period.
|Pension supplement reduces and energy supplement ceases after 6 weeks. After 26 weeks, payments paid indefinitely, but may be subject to proportionality rules if Australian working life residence4 less than 35 years.
|Hours of activity5||Allowed to work, volunteer, study or train for up to 25 hours a week without impacting payment.||Allowed to engage in paid employment for up to 30 hours a week without impacting payment.||
Can work, volunteer, study or train for any number of hours a week.
|Education related supplements||Eligible for Pensioner Education Supplement and an Education Entry Payment if they study.||Eligible for Pensioner Education Supplement and an Education Entry Payment if they study.||Ineligible for education related supplements.
|Applicable waiting periods||Seasonal Work Preclusion Period or Newly Arrived Resident’s waiting period may apply.||Income Maintenance Period may apply.||No applicable waiting periods.|
|Extended land use test||Applies if eligibility criteria is met.||Does not apply. Excess principal home land over two hectares is assessed as an asset.||Applies if eligibility criteria is met.|
|Mobility allowance||Although may be eligible, recipient not entitled for a higher rate like DSP.||Higher rate can be paid if they adhere to at least 15 hours a week of work-related activity.||Although may be eligible, recipient not entitled for a higher rate like DSP.|
It is also important to note that the $131.90 p.f. Carer Allowance can continue to be received by Age Pensioners who remain caring for someone and meet the eligibility criteria. Those eligible for Carer Allowance would also continue to receive the $600 p.a. Carer Supplement.
In most cases, Age Pension seems to be more appropriate unless clients are better-off receiving:
- higher Mobility Allowance in case of DSP; and/or
- higher Rent Assistance and/or Education related supplements in case of Carer Payment and DSP
Strategies to help maximise entitlements
Income support payments are generally based on an income and assets (means) assessment. Given the system is designed to ensure that higher entitlements are provided to people with lower means, appropriate planning can play a significant role to ensure your clients receive an improved entitlement now and continue to maximise their benefits through their transition to Age Pension.
Super contributions and income stream considerations
Generally super in the accumulation phase for someone under Age Pension age is an exempt asset and is only assessed as a financial asset and subject to deeming once they turn Age Pension age.
One commonly used strategy is when the older member of a couple, who meets a condition of release, withdraws their super, and the younger member of the couple recontributes those monies back to their super accumulation account (subject to their cap availability). This strategy could be utilised by a couple where one member is already Age Pension age who therefore could see an immediate increase in Age Pension, or by a couple who is planning ahead for when the older spouse reaches Age Pension age.
From 1 July 2020, work test restrictions will no longer apply to clients aged 65 and 66. A bill has also been introduced to Parliament that would enable clients aged 65 and 66 on 1 July to use the bring forward provisions. This would make these provisions consistent with the work test changes (subject to the passing of legislation). Currently, clients aged 65 or over on 1 July cannot trigger the bring forward provisions in that income year.
These changes will allow more flexibility when utilizing this recontribution strategy to maximize the Age Pension entitlement. This is because, the younger spouse can continue making non-concessional contributions until age 67 without meeting the work test.
Clients aged 65 or over may also consider making a downsizer contribution, if they have sold an eligible home. Although clients currently on JSP, Carer Payment and DSP may benefit until they reach Age Pension age by contributing to their accumulation account, these monies will be assessed once they reach Age Pension age. If your client has a super accumulation account which will impact their entitlement, alternative asset reducing strategies may be considered as they approach Age Pension age.
Many clients who were on an income support payment prior to Age Pension age and have decided not to start an income stream, may consider starting one at Age Pension age. An account-based pension (ABP) is assessed as an asset and subject to deeming (unless grandfathered) irrespective of the age of the client.
The allowable limit for gifting is $10,000 in each income year or $30,000 over a five-year rolling period. Amount gifted above these thresholds are treated as a deprived asset subject to deeming from the date of the gift. Asset-tested DSP and Carer Payment clients can see an increase in their entitlement of $30 per fortnight if they make an allowable $10,000 gift.
Clients providing more than the allowable amounts should be aware about the difference between a gift and a loan6. Although a loan is also treated as a financial asset subject to deeming, there is one difference between the treatment of a loan and a gift. The loan is assessed until it is repaid whereas the deprived asset part of the gift is no longer assessed as an asset after five years from the date of the gift. Therefore, it is essential to inform Centrelink of the type of arrangement to ensure the intended assessment applies.
Immediate family members of the beneficiary of a Special Disability Trust (SDT) can avail a Centrelink exemption for gifts to the SDT for up to $500,000 provided they are:
- of Age or Service Pension age or over and receiving a pension; or
- within five years of Age or Service Pension age and are not on a pension7.
Bring forward expenses
Clients can bring-forward certain expenses which they have planned for in future like home renovations, travel, prepaying funeral expenses or purchasing funeral bonds. As the principal home is an exempt asset, a value addition or renovation to their home will also be exempt.
Prepaid funeral expenses or buying a burial plot, irrespective of their value, is exempt from Age Pension assessment. Funeral bond or funeral fund purchases are exempt up to a value of $13,5008 and applies to a client who is single or to each member of a couple as long as both the members have a separate investment. Bringing forward expenses can help to increase the Centrelink entitlement of DSP or Carer Payment clients today.
Investing in a lifetime income stream
By allocating a portion of a client’s portfolio to a lifetime income stream (that meets the Capital Access Schedule) it may not only enable a better Centrelink entitlement but also help guarantee a regular income for your clients’ lifetime, regardless of how investment markets perform or how long they live.
With regards to the assets test assessment of these income streams, 60% of the purchase amount will be assessed as an asset until the day they turn age 84, or for a minimum of five years. After this, the assessment reduces to 30% of the purchase amount for the rest of the person’s life. Carer Payment and DSP asset-tested pensioners may consider this strategy today to receive an immediate increase to their entitlement. Or, clients who are cut-out from JSP due to assets test when it recommences from 24 September could also consider using this strategy.
Those on Carer Payment/DSP and have super accumulation assets, may have their entitlement impacted when they turn Age Pension age. Investing in a lifetime income stream can also help these clients manage their entitlement and maintain the PCC as they transition to Age Pension.
Valuation of non-financial assets
Clients should be made aware that their personal effects and household contents are assessed at their net market value which may be different to an insured value. Those currently transitioning from Carer Payment/DSP to Age Pension may want to revise their valuation if they believe certain assets have depreciated in value.
Those currently on JSP are automatically issued a Health Care Card (or PCC in some cases) and those currently on Carer Payment, DSP and Age Pension, automatically receive the PCC. However, if due to a change in assessable income and/or assets at Age Pension age such as super accumulation becoming assessable, and they are ineligible for Age Pension, they may apply for a Commonwealth Seniors Health Card (CSHC) and/or a Low Income Health Care Card (LIHCC).
Clients who hold a Health Care Card or PCC today should review the concessions their card provides to ensure they are maximising their benefits. Additionally, clients who are eligible for different concession cards upon turning Age Pension age should review what concessions their new card/s provides.
Some clients currently receiving JSP, Carer Payment or DSP may not have started an income stream to ensure it does not impact their current entitlement. These clients may consider continuing to keep those monies in accumulation when they turn Age Pension age if the deeming on their account-based pension may impact their CHSC entitlement.
This is because CHSC eligibility assesses a client’s adjusted taxable income and deemed income from account-based pension. Although keeping those monies in accumulation phase will eliminate the deemed income, the benefit of CHSC should be weighed against the applicable tax on earnings and gains on super in accumulation phase.
There are many considerations for clients approaching Age Pension age. Professionals have the opportunity to help these clients to:
- make an informed choice between their existing income support payments and Age Pension;
- consider the impacts of turning Age Pension age;
- manage their financial affairs in order to continue to maximise their entitlement and concession card benefits.