Help in understanding the Australian assets test for the age pension
The age pension is intended to protect seniors from living in poverty if they have no resources of their own. The amount of age pension may be reduced from the full rate if the senior has assets or other income. It’s ‘means tested’.
The pension means test determines any reduction in your age pension payment rate. Centrelink uses a process that assesses both your assets and your income and whichever test reduces your age pension rate the most is what is means tested.
In other words, the test that hits you the hardest is the means test applied.
The asset test reduces your age pension payment by $3 per fortnight for every $1000 of assessable assets over your asset test allowance. If you have substantial assets you could be excluded from the age pension and the pensioner concession card.
Assessable assets for the age pension asset test
Your assessable assets include everything you own and/or are owed—including business assets and assets held in trusts, plus any ‘excess gift amounts’.
However, the amount of refundable lump sums paid for residential aged care accommodation were exempted from assessable assets as at June 2018. And, if you’re a couple, your partner’s accumulating superannuation is excluded from your joint assessable assets until they attain their age pension age.
Special rules also allow for your principal place of residence to be excluded from your assessable assets. But blocks of land on separate titles from your principal place of residence and any land over two hectares are counted as assessable assets.
Lower asset test allowances for homeowners
If you own your principal residence, the value of your home is excluded from your assessable assets for the pension asset test. But the asset tested allowance is lower for homeowners to take into account the benefit of owning a home.
In 2018, the additional asset test allowance for non-homeowners was slightly over $200,000, which acknowledges the value of home ownership.
Centrelink doesn’t ask about the value of your home because the principal residence is an exempt asset. But, if the value of your equity in your home is well under $200,000, you could ask Centrelink to treat you as a non-homeowner and count your home equity as an assessable asset. This might give you more income through the age pension.
Illustration 1: The asset test impact on Sue, a single senior
As noted, the asset test reduces your age pension payment by $3 per fortnight for every $1000 of assessable assets over your asset test allowance. The asset test allowance increased to $456,750 for a single, non-homeowner from July 2017. A single pensioner who owns her own home has an asset test allowance of $253,750.
For example, Sue owns her own home and has $10,000 in the bank. She also has a car ‘valued’ at $3,000. Centrelink expects that her ‘personal items and household contents’ count for another $3,000 of assets.
As a homeowner with $16,000 of assessable assets, Sue isn’t impacted by the asset test. She would receive the full, current pension (June 2018) of $ 826.20 per fortnight provided that the income test did not impact her.
But then Sue inherits her mother’s coastal cottage valued at $400,000. This gives her $416,000 of assessable assets, which is $162,250 over the single homeowner asset test allowance in June 2018.
That means Sue’s age pension is then reduced by $486.75 per fortnight.
Illustration 2: Asset test cut-off for a single senior
Remember: The asset test reduces your age pension payment by $3 a fortnight for every $1000 of assessable assets over your asset test allowance.
In June 2018, the single rate of age pension was $826.20 per fortnight and the single homeowner asset test allowance was $253,750.
Looking at this another way, a single senior would retain the pensioner concession card (which has value in various ways, including for medication) and be paid an age pension of $1 per fortnight plus pension supplements, if her assessable assets—excluding her home—was $527,816 and she is not excluded by the income test.
A non-homeowner single senior could have up to $731,816 of assets before the asset test excluded her from the age pension.
Illustration 3: The asset test impact on Mike and Mary, a couple
For couples, the asset test also reduces the combined pension by $3 per fortnight for every $1000 of the couple’s total combined assessable assets over the asset test allowance.
The asset test allowance is $583,500 for a non-homeowner couple at Centrelink in June 2018. A homeowner couple can have $380,500 of assessable assets in addition to their home.
The asset test reduces the individual age pension payments to each member of a couple by half of the $3 per fortnight—$1.50 per fortnight each—for every $1000 of their total, combined assessable assets over their asset test allowance.
Consider Mike and Mary who own their home and a beach block now valued at $500,000. Mike and Mary have personal items and household contents with a minimum value of $5,000. They also have a motor vehicle valued at $20,000 and $15,500 in the bank.
That means that Mike and Mary have assessable assets of $540,500. Their homeowner asset test allowance is $380,500 which is less than their assessable assets limit of $540,500. The excess assessable assets of $160,000 results in their combined age pension being reduced by $480 per fortnight.
Illustration 4: Asset test cut-off for a couple
A couple living together have an asset test allowance of $583,500 at June 2018 or just $380,500 plus a home. This means a couple living together in their own home could have $795,000 of assessable assets in addition to their home and still retain $1 per fortnight each of age pension plus their pensioner concession cards.
A couple who do not own a home could have $998,000 of assessable assets and retain $1 per fortnight of age pension in June 2018, provided that the income test did not exclude them from the age pension.
A couple separated by illness are each entitled to the single rate of age pension reduced by the couple’s means tests. In June 2018, each member of a couple separated by illness could have an age pension of $826.20 per fortnight reduced by $1.50 per fortnight for every $1000 of assessable assets over the asset test allowance of $380,500 for a homeowner couple or $583,500 if they do not own their home.
The higher rate of age pension for couples separated by illness means that a couple who still own their home could have $930,600 of other assets before they were excluded from the age pension by the asset test.
A couple who are both in residential aged care and no longer own a home can have $1,133,600 of assessable assets before the asset test cut off their age pensions totally (at June 2018).
Revising the asset test cut-off amounts
The asset test cut-off amount increases whenever age pension rates are increased. The annual indexation of the asset test allowances also increases the cut-off amounts.
But cut-off amounts can be reduced if the asset test taper rate changes from the current $3 per fortnight of pension for each $1000 of additional assessable assets. Also, a change in the definition of assessable assets could change the impact of the asset test for some seniors.
For more details contact Centrelink direct, or talk to your financial advisor.
Christine Hopper is the Director of Financial Care Services, an independent financial advisor.
Financial Care Services is focused on mature people considering a change of lifestyle including retirement and particularly new living arrangements in: retirement lifestyle community villages; granny flats; supported or assisted living; and Commonwealth regulated aged care. She can be contacted through https://financialcareservices.com.au.
Christine talks to Centrelink as a customer receiving a Carers Allowance and on behalf of clients. She understands the range of Department of Veteran Affairs and Centrelink income support benefits, their relevant means tests and eligibility conditions. She’s an actuary who also holds a Bachelor of Science, a Diploma of Financial Planning and a Certificate of Theology.