Nick Bruining: Centrelink indexation shifts goalposts for millionaires to get themselves a part-pension

A sizeable increase in Centrelink pensions later this month will have the added bonus of allowing thousands of currently ineligible seniors to claim an age pension for the first time.

Pensions for singles will rise $28.10 to $1144.40 a fortnight from September 20. Couples will get an extra $21.20 each to a combined $1725.20 a fortnight when both members of the couple are eligible.

The increases translate to a sizeable shift in payment cut-off limits. Slip in under those limits and you’ll be entitled to a part-pension and the all-important Pensioner Concession Card.

Under the income test, the new cut-off limit for singles will be $2500.80 a fortnight. For couples, it’s a combined $3822.40. In the case of a couple, Centrelink view you as a single entity, so it doesn’t matter who generates the income.

Income assessed for Centrelink means testing is not the same as taxable income or, indeed, cash flow. You could be generating more than $2000 a week from an account-based pension and still qualify for a full age pension under the income test.

The increase in payment rates also increases the upper cut-off threshold under the asset test.

While a home-owning single still has a lower asset test threshold of $314,000, the new upper cut-off limit increases by $9250 to $695,500. For couples, the lower limit of $470,000 is complemented by a new upper cut-off limit of $1,045,500 which is an increase of $14,500 on the current level.

The value of the family home is still ignored no matter what it’s worth, provided it sits on less than 2ha and is used only for private purposes.

Centrelink income support payments are indexed in March and September each year and the specific payment you receive determines what indexation method is used.

In the case of allowance payments such as Jobseeker, parenting and youth allowance they are indexed to the consumer price index.

Increases to pension benefits including age, disability, blind and Department of Veterans’ Affairs war service are tied to one of three measures.

Firstly, they are indexed to either CPI or a special pensioner and beneficiary living cost index. Whichever figure is the greatest over the preceding six-month period is the one used.

Once the new rate has been established, the couple’s combined rate is compared to male total average weekly earnings and tied to 41.76 per cent of that number. If necessary, the pension is increased to match that calculation. The single pension rate is 66.33 per cent of the couple’s rate using this method.

A quirk in the system means the minimum amount payable to anyone eligible will be nearly $1200 for singles over the year and a combined payment of more than $2300 for eligible couples.

The fortnightly pension payment is made up of a base pension plus supplements to cover a range of expenses including phone, internet and prescription medicines.

While means testing reduces the base pension, there’s no mechanism to reduce the supplements below minimum payment amounts. That means the least you can expect to receive is $58.90 a fortnight for singles and a combined $88.80 for couples. And that applies if you are just $1 under the cut-off limits.

This amount is in addition to the State and Federal government discounts that come with a Pensioner Concession Card which is issued to anyone receiving a full or part-pension.

The Association of Independent Retirees has previously calculated savings from using the card to be as much as $7000 a year across commonly used government and private services.

More on how the income test works

Centrelink’s income test firstly applies a deemed rate of interest to all financial assets.

These include the values of all bank accounts, share holdings, managed investment funds, account-based pension funds, gifts over the gifting limits and super funds if you are over age pension age.

For singles, this grand total is deemed to be earning 0.25 per cent a year on the first $62,600 and for couples, 0.25 per cent applies to the first $103,800 of combined financial assets. Above these levels the remainder is deemed to be earning 2.25 per cent a year. The annual total of deemed interest is then divided by 26 to give a fortnightly amount.

This figure is added to fortnightly rental income after expenses, foreign income and employer-provided fringe benefits. Gross employment income is also included, but off this figure comes the working bonus credit of $300 a fortnight. This credit only applies to employment income and unused amounts don’t carry over to other income.

The grand fortnightly total is tested against the income-free area which for singles is $212 a fortnight and for couples, a combined $372 a fortnight.

If you exceed these amounts, your pension is clipped at the rate of 50¢ for each $1 over the threshold.

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