Nick Bruining: Rise in Centrelink age pension also lifts cut-off threshold for retirees worth more than $1m

While most attention has been drawn to the increase in Centrelink deeming rates, a sizeable increase to pension payment rates shouldn’t go unnoticed.

Thousands of well-heeled seniors might now qualify for a payment for the first time. But the increase also highlights the difference in the legislated indexation rates between pensions and allowance payments like JobSeeker.

For those affected, the rise in payments conveniently masks the effects of a change to the deeming rates.

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 pensioner index wins the race and the single pension will rise by 2.58 per cent — or nearly $30 a fortnight — from $1149.00 to $1178.70, effective September 20.

By comparison, an adult single person receiving an allowance like JobSeeker can expect a maximum increase of $13.40.

For couples, each member will receive an extra $22.40, lifting the fortnightly amount to $880.50 each — or a combined $1770.

While seniors will welcome the increase, the extra amount also has the effect of lifting the upper cut-off limits for both the 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 $2575.40 a fortnight, which translates to about $66,960 a year. If part of that income is from employment, the upper limit could be as much as $78,760.

For couples, the combined upper limit rises to $3934 a fortnight, or $102,284. Again, if both of you are working, this limit could be as much as $125,884.

Centrelink-assessable income is not the same as the Australian Tax Office method of calculation. Employment, foreign pension and some Aussie super 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.

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 payment increases mean a homeowning couple can now have assets up to $1.074 million and qualify for a part-pension. For singles, the new upper limit is $714,500. 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.

These represent a sizeable increase in the upper limits of $10,000 for singles and a combined $15,000 for couples.

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 $59.70 for singles and $45 each — or a combined $90 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