Understanding age and superannuation pensions

Mature couple thinking over pension plan at home

Image: Yastremska/ Bigstockphoto.com

In Australia, superannuation pensions are now a thing of the past, but some retirees still receive them. It used to be that public sector employers and large businesses provided superannuation pensions to staff who stayed until retirement. Staff members usually paid contributions of about 5% of their salaries as their share of the cost of these pensions.

The amount of each retirement pension is set when the pension payments start. Thus the retirement pension is known as a ‘defined benefit’.

These pensions are paid throughout the lifetimes of the retiree. Many public sector pensions continue to be paid, at a reduced rate, to a surviving spouse. Once the retirement pension payments start, the retired staff member is unable to commute their pension into lump-sum payments.

The payment rate of a public sector retirement pension is usually increased in line with changes in the Consumer Price Index. That means the pensions, which are generally paid fortnightly, have indexation increases applied each January and/or July.

One role of the superannuation pension manager is to make sure that the fund has enough resources to pay the defined benefit lifetime pensions throughout the lifetimes of the retired members and their spouses.

Centrelink exempts these lifetime pensions from the Age Pension Asset Test and that stands to reason because Centrelink would have difficulty placing a lump-sum value on such a pension if you can never turn them into a lump sum.

Lifetime superannuation pensions do, however, count for the Age Pension Income Test.

Centrelink allows a discount on the amount counted for the Income Test when the Age Pensioner paid member contributions towards the cost of the superannuation pension. But this discount can’t be more than 10% of the amount of the superannuation pension payment.

In 2007, Centrelink closed the Asset Test Exempt option for lifetime pensions bought from superannuation funds.

Other seniors can still choose to take their superannuation benefits in regular fixed instalments. But Centrelink will count these private superannuation pensions in the Asset Test for the Age Pension.

 

This is part of a continuing series about Centrelink by Christine Hopper who talks to Centrelink as a customer 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.

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Category: Finances, Planning, Superannuation

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