THE fact that Australia has an ageing population has been a concern for past and present governments. At the heart of the concern has been how to balance future budgets with an ever-increasing number of the population entitled to the age pension.
The age pension as we know it today was introduced on July 1, 1909. It was originally only payable to men once they reached 65. From December 1910 women also became eligible for the age pension once they turned 60. The pension was $52 a year, which was just under a quarter of the basic wage at the time.
As is the case today, there was an income test and an assets test. Under the income test an individual pension was not payable for someone with income of more than $104 a year. Under the assets test only property was counted, and an individual was ineligible for the age pension if they had property worth more than $620.
At the time of the introduction of the age pension the average life expectancy for men was 55 and for women 59. This put the odds firmly in favour of the federal government not having to pay the age pension to many people. The odds are now in favour of pensioners, with the average life expectancy now being 79.5 for men and 84 for women.
One of the first moves taken to reduce entitlement to the age pension was to gradually increase the eligible age for females so that it matched the entitlement age for males. This was done by increasing the entitlement age in half-yearly increments depending on a woman's date of birth. The entitlement age for women is now 64 and eventually increases to 65 for women born between January 1, 1949, and June 30, 1952.
The next step to reduce will apply from July 1, 2017. This change will result in the entitlement to the age pension for both men and women gradually increasing to 67 by 2024.
In addition to the age barriers, there are still income and assets tests. Different limits apply to single pensioners and pensioner couples. Under the income test a single person can earn up to $150 a fortnight and a couple can earn $264 a fortnight and receive the full pension. Once income exceeds $1660 a fortnight for individuals and $2541 a fortnight for couples no pension in receivable. Where a pension is received from a super fund the amount counted under the income test is reduced by the purchase price of the pension.
Under the assets test there are two different limits that apply. Non-home owners can have up to $321,750 for singles and $400,000 for couples and still receive the full pension. Pensioner home owners have an asset limit of $186,750 for singles and $265,000 for couples.
For a couple where one person is of pension age, and the other is not, the value of the younger person's superannuation is not counted under the assets test until they reach pension age. The exception to this is if a pension has been commenced from the super fund.
With the increased age limit being introduced for entitlement to the age pension the only areas that can be changed, to help balance the budget, are the assets and income test limits. What form these changes will take is anyone's guess. I suspect that it will not be a case of if changes will be made, but when they will apply from.
Frequently Asked Questions about this Article…
What is the Australian age pension and how has it changed since it began?
The age pension in Australia began on July 1, 1909 as a modest payment originally available to men at 65 and women (from December 1910) at 60. It has always included income and assets tests; over time eligibility ages and testing rules have been adjusted as life expectancy rose and budget pressures increased.
What are the current age pension eligibility ages and when will the pension age rise to 67?
Eligibility ages have been brought closer together—women’s entitlement age has increased gradually and is now 64 for many, moving to 65 for those born between January 1, 1949 and June 30, 1952. From July 1, 2017 the pension age change began that will see entitlement for both men and women gradually increase to 67 by 2024.
How does the income test work for the age pension and what are the current income thresholds?
The income test assesses how much you can earn and still receive the pension. According to the article, a single person can earn up to $150 a fortnight and a couple up to $264 a fortnight and still receive the full pension. Once income exceeds $1,660 a fortnight for individuals and $2,541 a fortnight for couples, no pension is payable.
What are the assets test limits for pension eligibility and how do home ownership rules apply?
The assets test has different limits for homeowners and non-homeowners. Non-home owners can have up to $321,750 (singles) or $400,000 (couples) and still receive the full pension. Pensioner home owners have lower limits: $186,750 for singles and $265,000 for couples.
How is superannuation treated under the assets test for couples where one partner is below pension age?
If one partner is of pension age and the other is not, the younger partner’s superannuation is not counted under the assets test until they reach pension age. The exception is if a pension has already been commenced from the super fund—in that case it can be counted.
How does income from a superannuation pension affect the income test?
When a pension is received from a super fund, the amount counted under the income test is reduced by the purchase price of that pension. In other words, the income test takes into account the purchase price when assessing how much of that superannuation income counts as assessable income.
Why might pension eligibility criteria change again, and which parts are most likely to be tightened?
With an ageing population and rising life expectancy, governments face budget pressure from more people being entitled to the pension for longer. The article suggests that, with the age limit already increasing, the only realistic levers left to rebalance budgets are the income and assets test limits — so those are the parts most likely to be tightened.
What should everyday investors know about the outlook for age pension rules?
Everyday investors should be aware that pension rules have evolved and the article indicates it’s likely not a question of if but when income and assets test limits will be changed again. Keeping an eye on policy changes to the income test, assets test and how superannuation is assessed will be important for retirement planning.
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