NICK BRUINING: Australia’s stellar share market surge is about to shred payments for Centrelink age pensioners

Thousands of Centrelink recipients looking forward to a sizeable lift in their pension could be up for a rude shock when Services Australia’s computer systems recalculate their pension entitlements.

Instead of a fortnightly increase, they could instead see their pensions reduced after Australia’s share market hit all-time highs.

The revelation comes as income support recipients also prepare for an increase in Centrelink’s deeming rates, which have remained frozen for more than five years.

Independent financial planner Emily van Kampen said most Centrelink customers were unaware of what was about to happen.

“We’ll see a sizeable increase in pensions from September 20, but that’s also the date when Services Australia automatically revalue unitised financial assets, like shares and super funds,” Ms van Kampen said.

The full single rate of pension will increase by nearly $30 a fortnight from Saturday, to $1178.70. For couples, the increase of more than $22 each translates to a combined fortnightly payment of $1777 when both members of a couple are eligible.

Services Australia’s systems then apply the income and asset means tests to determine if the full rate of pension is reduced.

While many people think these adjustments occur on an ongoing basis, the reality is different.

If you provide details of any changes to your circumstances between the scheduled payment increases on March 20 and September 20 each year, Services Australia will recalculate your entitlements with the new information included.

“If there’s no update between the dates, the systems will perform an automatic update in September and March,” Ms van Kampen said.

The issue for pensioners is that when the automatic process was last applied, the All Ordinaries index — a standard measure of the total Australian share market — was sitting at about 8400 points. At the end of August, when the new values for most unitised investments were taken, the market had jumped to more than 9300 points — up by around 10 per cent.

Investors with individual shareholdings will see an even greater impact if the shares have done well.

A retiree with a portfolio of Wesfarmers shares worth $20,000 in March is now sitting on a share bundle worth about 24 per cent more at $24,800.

A balanced super or other managed investment fund with a value of $300,000 would have a typical exposure to growth assets like shares of about 60 per cent — or $180,000.

Assuming the 10 per cent increase in share values is reflected in their super fund, the new balance could be around $318,000.

“Under the asset test, each $1000 over the threshold reduces the pension by $3 a fortnight,” Ms van Kampen said.

“An existing asset-tested single pensioner with an $18,000 increase in their balance not only loses the $29.70 pension increase, but also another $24.30 a fortnight.”

An asset-tested couple in a similar position would not only see their expected $44.80-a-fortnight increase wiped out, but also a further reduction of $9.20.

People currently receiving the full rate pf pension with a sizeable increase in balances since March might be now captured under the means testing system for the first time.

Under the income means test, the increased values will also be affected by the 0.5 per cent increase in the deeming rates.

Frozen during the COVID-19 pandemic, the new annual deeming rates applying from Saturday will be 0.75 per cent for the first $64,200 of financial assets, with 2.75 per cent deemed on the value above this level. For couples, the lower 0.75 per cent applies to the first $106,200.

The total deemed annual income is then divided by 26 to determine a fortnightly amount. For singles, when all Centrelink assessable income exceeds $218 a fortnight, the pension is reduced by 50¢ for every $1 over. For couples, the fortnightly income-free area is a combined $380.

An income-tested pensioner with an $18,000 increase in financial assets could see the new deemed income on the increased amount be up to $19.04 a fortnight. That would translate to a $9.52-a-fortnight reduction in their pension.

“At this stage, account-based pension investors aren’t directly affected but they might cop the effects when Services Australia next updates those details,” Ms van Kampen said.

“ABPs are processed twice a year, with super funds or their members required to supply updated values.”

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association