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    Social Security and Centrelink Advice

    Overview

    The Australian social security system, and the Age Pension in particular, is administered under rules of considerable complexity that directly affect the financial decisions made in retirement. The interaction between superannuation drawdown, investment structures, the assets test, the income test, and the deeming rules can make a material difference to the Age Pension entitlement received, sometimes amounting to thousands of dollars per year.

    Details

    Peter White Financial Planning provides Age Pension and social security advice from Level 57, 25 Martin Place, Sydney CBD, as an integrated component of retirement income planning. Peter coordinates with the client's accountant and, where relevant, with the Centrelink Financial Information Service, to ensure advice is grounded in the current legislative framework.

    Additional Information

    Age Pension eligibility is subject to both an assets test and an income test, and the lower payment from each assessment applies. The assets test compares the value of assessable assets against the relevant threshold, which differs for homeowners and non-homeowners and for singles and couples. The family home is exempt from the assets test. Superannuation in accumulation phase is not assessable under either test for individuals who have not yet reached Age Pension age, which creates a planning opportunity for clients in the years before their 67th birthday.

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    Under the assets test, the Age Pension reduces by $3 per fortnight for every $1,000 of assets above the lower threshold. Understanding which assets are assessable and which are exempt, and how different structuring decisions affect the assessable total, is an important part of retirement income planning.

    Further Details

    The income test applies deeming rates to financial assets regardless of the income they actually generate. Deeming assumes that financial assets earn a prescribed rate of return set by the government, which is applied to calculate the income test figure. Understanding how deeming applies to superannuation account-based pensions, term deposits, shares, and other financial assets is necessary for accurate modelling of Age Pension entitlements.

    Overview

    Strategies to improve Age Pension outcomes within the legislative rules include directing assessable assets to exempt uses, timing contributions to superannuation before reaching Age Pension age, structuring income streams to maximise the deductible amount under the income test, and gifting within the allowable limits. Gifts above the allowable amounts, currently $10,000 per financial year with a five-year rolling cap of $30,000, are treated as assessable assets for five years under the deprivation rules.

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    Your Questions Answered

    Frequently Asked Questions

    The assets test threshold depends on whether you are single or a couple and whether you own your home. Thresholds are indexed to the Consumer Price Index periodically. Peter White can advise on current thresholds and model the impact of your specific asset position on your Age Pension entitlement.

    Superannuation in accumulation phase is not assessed under either the assets test or the income test for individuals who have not yet reached Age Pension age. Once you reach Age Pension age, your superannuation balance, including account-based pensions, is assessed under both tests. This creates a window before Age Pension age during which contributions or the conversion of assessable assets into superannuation can improve the Age Pension outcome at retirement.

    Deeming is the method Centrelink uses to assess the income from financial assets for the purposes of the income test. Rather than using actual income earned, Centrelink applies prescribed deeming rates to the value of financial assets. A lower deeming rate applies to assets up to a threshold, and a higher rate applies above it. Financial assets subject to deeming include bank accounts, shares, managed funds, and account-based superannuation pensions.

    Yes, within limits. Centrelink allows gifts of up to $10,000 per financial year, with a maximum of $30,000 over five consecutive financial years. Gifts within these limits are not assessed under the assets test. Gifts above the allowable amounts are treated as a deprived asset and remain assessable under the assets test for five years from the date of the gift. Peter White advises on gifting strategies and their interaction with Age Pension entitlements.