Nick Bruining: Increase in Centrelink’s deeming rates poised to clip a September pay rise for part-pensioners

A sizeable increase in Centrelink pension payment rates from next month could be short-lived if the extra cash is zapped by a corresponding increase in the welfare agency’s deeming rates.

Thousands of well-heeled seniors might now qualify for a payment for the first time.

But the increase also highlights the stark difference in the legislated indexation rates between pensions and allowance payments like JobSeeker.

Government income support payments are indexed twice a year — in March and September.

While allowance payments are linked directly to the consumer price index, pensions are increased by either CPI or a special pensioner and beneficiary living cost index.

Whichever test produces the highest pension is the one used. This figure is then tested against male total average weekly earnings.

This time around, the single pension will rise by 3.06 per cent to nearly $37 a fortnight — up from $1200.90 to $1237.70, effective September 20.

By comparison, an adult single person receiving an allowance like JobSeeker can expect a maximum increase of $16.20 a fortnight, or just 1.98 per cent.

For couples on a pension, each member will receive an extra $27.80, lifting the fortnightly amount to $933 each, or a combined $1866.

While seniors will welcome the increase, the extra amount also has the effect of lifting the upper cut-off limits for both of Centrelink’s income and asset tests.

That translates to many thousands of seniors becoming eligible for a part-pension for the first time.

The new upper income test cut-off limit for a single will be $2701.40 a fortnight, which translates to $70,236.40 a year. If part of that income is from employment, the upper limit could be as much as $82,036.40.

For couples, the combined upper limit rises to $4128 a fortnight, or $107,328.

Again, if both of you are working this limit could be as much as $130,928.

Centrelink-assessable income is not the same as the Australian Taxation Office method of calculation.

Employment, foreign pension and some Aussie superannuation pension income is added to net rental receipts from investment properties. To that, add the deemed income from financial investments to work out your fortnightly assessable income.

The deemed income is calculated by applying a notional rate of interest to all of your financial assets. What you actually earn on your investments is ignored.

The first $66,800 will be deemed to be earning 1.75 per cent a year for singles — that’s a 0.5 per cent increase from where it sits now. For couples, the 1.75 per cent rate applies to the first $110,600 of financial assets.

For both singles and couples, a higher deeming rate of 3.75 per cent applies to the value of all financial assets above the thresholds. That calculated annual figure is then divided by 26 to give you an equivalent fortnightly income.

Financial assets include all bank accounts, shares, managed investment funds, money in superannuation, money in account-based pension funds and gifts above certain limits.

In short, forget any nifty ways of distorting income or financial assets — nothing escapes Centrelink’s attention.

Applicants will have to satisfy the asset means test as well. Under the rules, whichever test produces the lowest benefit payable is the one Centrelink’s systems will use.

The asset test is generally regarded as the harshest of the two.

Even so, the September 20 payment increases mean a home-owning couple can now have assets up to $1.121 million and qualify for a part-pension.

For singles, the new upper limit is $745,750.

These represent a sizeable increase in the upper limits of $12,250 for singles and a combined $18,500 for couples.

In all cases, the family home — provided it sits on less than 2ha and is used for private purposes — is completely exempt, no matter what it is worth.

Under a quirk in the system, someone near the cut-off levels won’t see their part-pension dwindle to a couple of dollars a week as they approach the upper limits.

The fortnightly Centrelink pension payment includes a base pension and pharmaceutical, telephone and other supplements.

While the legislation allows tapering of the pension payment, that doesn’t apply to the supplements. You either get the full supplement or nothing at all.

The minimum you can receive if under the cut-off limits is $61.80 for singles and $46.40 each, or a combined $92.80 a fortnight, when each member of a couple qualifies.

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