Nick Bruining: Centrelink’s July 1 shift of means test goalposts could get you a part-pension for first time

Increased Centrelink means-test thresholds have been released, meaning thousands of Australian seniors will be entitled to government benefits for the first time.

The changes — set to apply from July 1 — mean a home-owning couple will be eligible to receive a part-pension even if their annual combined Centrelink-assessable income is just under $100,000 and their assets, excluding the family home, are under $1.059 million.

That also means getting access to the highly sought-after Pension Concession Card, which could be worth up to $7000 in savings for some households.

The legislated increases are tied to the consumer price index.

From July 1, singles collecting an age or disability pension and those on the carer payment will have a Centrelink-assessable income-free area of $218 a fortnight — an increase from the current level of $212. Under the income means test, each $1 over the threshold reduces the pension by 50¢ a fortnight until it hits the new upper cut-off limit of $2516 a fortnight.

For couples, the new combined income-free area will see an $8 rise to $380 a fortnight, with an upper cut-off of $3844.40 a fortnight.

Centrelink regards couples as a single entity, so effectively the income could all be earned by just one member of a couple. Again, a 50¢-in-the-$1 reduction applies to the combined pension payable if the income test threshold is exceeded.

Centrelink-assessable income is not the same as taxable income or cash-flow.

Instead, Centrelink includes gross employment income, net rental income and foreign pension income, and applies a deemed rate of interest to all financial investments to determine assessable income.

The deeming rate thresholds also increase on July 1 to $64,200 for the lower threshold for singles and $106,200 for couples.

Under current rules, a deeming rate of interest of 0.25 per cent applies up to the lower threshold and then a rate of 2.25 per cent applies to all financial investments above the threshold. That annual figure is converted to a fortnightly amount and applied towards the fortnightly income-free area.

Income from employment for age pensioners and carer payment recipients also receives a further exemption of $300 a fortnight.

That means, for example, a senior with part-time employment and other assessable income could earn up to $518 a fortnight before seeing their pension reduced under the income test.

By far the harshest of Centrelink’s two tests is the asset means test. Under the system, whichever test produces the lowest pension is the one Centrelink will use.

For a homeowner, the entire value of the home is ignored, providing it is used by the Centrelink customer for private purposes and sits on less than 2ha.

The lower threshold for a single home-owning pensioner increases from $314,000 to $321,500, and for a couple from $470,000 to $481,500. This also lifts the upper cut-off threshold for a home-owning single from $697,000 to $704,500, and for couples to a whopping $1,059,000.

Under a quirk in the system, those just under the upper cut-off threshold will receive at least $59.10 a fortnight if you’re a single and $44.50 each for eligible members of a couple if they’re residents of Australia.

This is because the full fortnightly payment includes the base pension plus supplements to cover the costs of communications, prescription medicines and energy. While the legislation allows the base pension to be steadily reduced, the supplement payments are made in full, or not at all.

That also entitles the part-pensioner to receive the treasured Pension Concession Card, which entitles them to receive substantial discounts on State and Federal government utilities and services.

The Association of Independent Retirees have previously identified that, when combined with private discounts, these savings could in some cases be more than $7000 a year.

Non-homeowners — both singles and couples — are allowed an extra $258,000 in assets before their pension starts to reduce under the asset test.

Payment rates increase twice a year — in March and September — and these will have an effect of lifting the upper cut-off thresholds even higher.

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