As assets decline in value, more retirees are turning to the age pension

IN JANUARY, it was reported that the number of retirees successfully applying for the age pension each week had gone from 2000 to 3000.

The reason for the increase? The global financial crisis has hit hard at both the incomes and, significantly, the assets of retirees. Many retirees who were not previously eligible for the pension, due to the level of their assets, now are.

Males are eligible for the age pension from 65, while eligibility for females ranges from 60 to 65, depending on the year you were born. The amount you get is determined by two tests - the income and the assets tests - as well as your age. The test that produces the lowest entitlement applies to you.

The income test is fairly straightforward. A person or couple can earn a certain amount of income each fortnight and still receive a full age pension. As a person or couple's income rises above this amount, a part pension is paid until the income reaches a point at which there is no entitlement.

The assets test is, given recent developments, of more interest. According to the Centrelink definition, an asset is any property or item of value that you or your partner owns or has an interest in, including those held outside Australia.

Some assets are exempt, including your principal home, some income-stream products (such as lifetime pensions commenced before September20, 2007), funeral bonds, and accommodation bonds paid on entry to residential aged-care facilities.

Assessable assets include:

The current value of your cash and financial investments.

Superannuation/rollover investments held by people over pension age.

Real estate including holiday homes.

Motor vehicles and household contents.

The value of many of these assets has declined recently and, as the following case study shows, this means some retirees are now eligible for a pension for the first time. With the right kind of planning, the value of an age pension can be optimised.

Retired couple David (just turned 65) and Sue (just turned 60) are considering how to meet their income needs in retirement, now David has reached pension age. Based on their current income and assets (which fell recently due to market declines, and because they drew lump sums from their allocated pensions for an overseas holiday and maintenance on their home), David is not eligible for an age pension. Sue is not yet eligible for an age pension because of her age.

David and Sue consult a financial adviser, who, by suggesting changes in relation to their allocated pensions and the income they receive, helps them maximise their age pension. As a result, David is able to supplement their income with some age pension entitlement. He is also entitled to the benefits of a Pensioner Concession card - access to the Pharmaceutical Benefits Scheme, concessions on utilities, one-off bonus payments (such as those provided by the Rudd Government in December 2008), and internet and phone allowances.

It's not just the extra income that's of value when you are entitled to an age pension, even if you only get $1 per fortnight. The benefits can make a big difference, too.

Centrelink provides information about the age pension online and through customer service centres. The paperwork can be complex a licensed financial adviser can help navigate this, and show how much you can afford to spend and how long your money can last.

Adam Hosken is a senior financial adviser with Mercer Wealth Solutions.