Nick Bruining Q+A: Your younger husband’s income reducing your Centrelink age pension? Get a job!

Question

I am 72 and receive the age pension.

My new husband is 60 and is still working full time. He earns $75,000 but after tax brings home $59,000.

We do not own a home.

I am currently required to report my husband’s gross income each fortnight which, after tax, is significantly less.

I cannot understand why my pension is reduced by his income.

Answer

The Australian retirement system works on the principle that if you have the means to fully or partially fund your own retirement, you are compelled to do so. This is because the money used to pay for the age pension is a finite resource.

This principle is implemented through the means-testing system which looks at both assets and income to determine entitlements. Whichever test produces the lowest pension is the test Centrelink will use to calculate your income support payment.

Other countries such as the UK have so-called “universal pension” schemes where no means tests apply. Under the Australian system, couples are regarded as a single entity for means-testing purposes. This is based on the fact that, as a couple, you are both likely to benefit from any resources that either of you has, or receives over time.

The income test is complicated and combines a deemed income on all financial assets and assessable income in the case of employment and foreign income, and net rental receipts.

Gross income is used because your husband could employ strategies to reduce net income such as salary-sacrificing of having extra tax deducted. Surprisingly, actual income from superannuation withdrawals and payments from income stream investments is not counted under the income test.

Your predicament does highlight one of the problems that has been identified with our current system when there is a difference in age. In effect, you are paying a 25 per cent tax through the reduction of your pension through the application of the income test.

As a couple, you can earn $372 a fortnight before the income test starts to bite. Over this limit, your pension is being reduced by 25¢ per dollar. The effects of this can be reduced if the eligible age pensioner has employment income.

In addition to the $372, a $300 working bonus credit applies each fortnight. That means that each member of a couple could earn $300 a fortnight from employment in addition to the $372 income-free area. All up, that could be as much as $972 a fortnight that is disregarded.

That figure would also need to include the deemed income from financial assets. Note that an unused working bonus credit cannot be transferred to a partner.

One final point, as a renter are you receiving rent assistance payments? You probably have an entitlement to this payment.

Question

In February 2007 I prepared my last will and testament, naming my two daughters as the executors and trustees.

Since then, there has been a change of occupations for the trustees and all three of us have changed addresses.

Do I need to prepare a new will?

Answer

The short answer is no, because the occupation and address are basically used to help identify the persons named.

Nonetheless, it is worth revisiting the will because over the past 17 years much may have changed.

If the beneficiaries or your own circumstances have changed, you might look to change how the funds are distributed. For example, if there are potential relationship issues within the beneficiary’s lives, you can take steps to ensure the estate passes to those you intend to receive the distributions, rather than others.

Similarly, there may be significant tax benefits in establishing vehicles called testamentary trusts, where the income from the estate can be distributed to children and taxed at very favourable rates.

A meeting with a competent estate planning lawyer and/or a financial planner should be able to guide you on whether the will needs to be updated.

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