The Age Pension is more than just a payment; it’s a foundation for a comfortable retirement. While the first step is understanding eligibility and payment rates, the next is knowing how to make the most of it. For many Australians, a few strategic moves can make a substantial difference to their financial wellbeing.
Here are some key areas to focus on that go beyond the basics of the Age Pension.
1. The Power of Your Primary Residence
Your family home is not counted in the assets test. This is an important rule that savvy retirees can leverage. Instead of having a large amount of cash or investments that are subject to the assets test, consider using those funds to:
- Pay Down Your Mortgage: If you still have a mortgage, paying it off will reduce your assessable assets and, in turn, may increase your pension payments.
- Invest in Home Renovations: Spending money on home improvements—like a new kitchen, bathroom, or a solar panel system—can improve your living situation and add value to your property. Since these funds are no longer “assets,” they will not affect your pension entitlement.
- Consider Downsizing (Carefully): While your home is exempt, the cash proceeds from selling a larger, more expensive home and buying a smaller one can become an assessable asset. However, if managed correctly (for example, by using the proceeds to pay off debt or invest in home improvements for your new residence), this can be a viable strategy. It’s important to understand the specific rules and time limits for exempting sale proceeds when buying a new home.
2. Reassessing and Managing Your Assets
Many retirees are unaware of how their assets are valued for the Age Pension assets test. A regular review of your assessable assets can be a powerful way to ensure you’re getting the most from your pension.
- Review Your Valuations: Assets like cars, caravans, and home contents are often over-valued. Centrelink assesses these at their current second-hand value, not their original purchase price or replacement value. Regularly updating these valuations can significantly lower your total assessable assets. For example, a car you bought for $30,000 may now only be worth $10,000.
- The “Deeming” System for Income: The income test uses a system called “deeming” for financial assets like bank accounts, term deposits, shares, and managed funds. This means Centrelink assumes a certain rate of return on these assets, regardless of the actual income they generate. It’s a key part of the income test to be aware of when planning your investments.
3. Strategic Use of Superannuation for Couples
If you are a member of a couple where one person is of Age Pension age and the other is not, there is a key strategy to consider. Since superannuation is exempt from the assets test until you reach Age Pension age, you can strategically contribute to the younger spouse’s super account.
This can be a powerful way to reduce the couple’s overall assessable assets, potentially moving them from a part-pension to a full-pension entitlement. This strategy requires careful consideration of contribution rules and limits and is a perfect example of why professional financial advice is so valuable.
4. Leveraging Other Government Payments and Concessions
The Age Pension is the main gateway to a range of other benefits, and knowing what you might be entitled to can put more money in your pocket.
- Commonwealth Seniors Health Card (CSHC): This card is a great safety net for retirees who don’t qualify for the Age Pension. Its eligibility is based on an income test only, with a generous income threshold and no assets test. It provides access to cheaper prescription medicines and other concessions.
- Rent Assistance: If you’re a renter, the Rent Assistance payment can be a welcome addition to your fortnightly pension. This is particularly important for non-homeowners who often have higher assessable asset limits but also face significant ongoing rental costs.
- Other State and Local Government Concessions: Don’t forget to check for concessions on things like utilities, transport, and council rates. These can vary by state and local government area, so it’s worth doing some research.
5. The Work Bonus Scheme and Earning in Retirement
Retirement doesn’t have to mean the end of work. The Work Bonus scheme encourages pensioners to continue working by allowing them to earn a certain amount of income without it affecting their pension.
- Accumulating the Work Bonus: The first $300 of fortnightly employment income is not counted in the income test. If you earn less than $300 a fortnight, the unused amount accrues in an “income bank” up to a maximum of $11,800. This bank can then be used to offset future earnings, allowing you to take on a higher-paying short-term job without impacting your pension payments.
Professional Advice
These strategies can make a meaningful difference, but it’s important to be aware of the fine print. For example, Centrelink may apply deprivation rules if spending on renovations or debt repayment appears excessive, downsizing the family home can trigger complex rules including the downsizer super contribution scheme, and moving assets into a younger spouse’s super can improve Age Pension outcomes but also lock away funds until preservation age. Even schemes like the Work Bonus are subject to policy changes over time.
Because these rules are detailed and can have unintended consequences if not managed carefully, seeking professional financial advice is often the best way to ensure your strategy maximises your Age Pension while still fitting your personal circumstances. Please feel free to reach out to us if you have any questions.
