FOR many baby boomers the super guarantee contributions made by employers, although having increased retirement savings, will have come too late and they will still need the age pension to survive. The amount they receive will depend on the total value of their assets, excluding the family home, or the amount of income earned from investments.
QWhat income figure should be given to Centrelink? The total income earned in the year or the amount shown on my tax return, with deductions, as I have invested some in shares and an investment property?
A Under the income test investments are divided into two categories. For the first, the actual income earned by the investment is counted by Centrelink. Your investment property is an example of this type of asset. The net taxable income you earn will be counted under the income test.
The other category includes all financial investments such as cash, bank accounts, term deposits and shares. Centrelink applies a deemed earning rate to the total value of these investments that it counts under the income test. This means the income counted for you will be the net taxable rental income plus the income you will be deemed to have earned on the value of your shares.
Q I am a 54-year-old woman earning $40,000 a year and have $50,000 in super. I own my own home and have $20,000 in the bank, own a car and no other investments. How much can I have in super and still be eligible for the age pension? I know I have to work until 57 before I can get the pension.
A The age limit of 57 is not when you will become eligible for the age pension. This is the age at which you can retire from full-time employment and gain access to your super. You will not be eligible for the age pension until 67. Under the assets test limit you could have up to $186,750, including super, car and other investments, and still get the full age pension as a single person.
Q We are non-home owners with $50,000 in assets, being a car and contents. I am 66 and my wife turns 65 soon. I am confused about the assets and income test used by Centrelink. In addition to my $140,000 super, I have a transition to retirement pension worth $330,000 and my wife has super of $64,000.
When I retire, if I put all of what I have into super, can I withdraw any amount tax-free? Other than the deeming rate by Centrelink, would the amount I withdraw be counted as income?
A As you are over 60, any amount withdrawn from your super fund, as long as it is a taxable fund, will be tax-free. Amounts held in super are counted under the assets test and can also have the deeming rules applied to that value if a pension is not being taken. Where a pension is paid from a super fund, the full amount received is not counted as income by Centrelink.
Instead, the amount received is reduced by what Centrelink regards as the purchase cost of the pension. This is calculated by dividing the value of your super when you started the pension by your life expectancy then.
Questions can be emailed to super@taxbiz.com.au. Max Newnham's book, Funding Your Retirement A survival Guide, is available in stores and as an e-book.
Frequently Asked Questions about this Article…
How does Centrelink decide how much age pension I’ll receive?
Centrelink assesses either your assets or your income. The age pension amount depends on the total value of your assets (the family home is excluded) under the assets test, or on the income you earn from investments under the income test. Centrelink applies whichever test results in the lower pension payment.
What income figure should I report to Centrelink for shares and an investment property?
Investment income is split into two categories. For an investment property, Centrelink counts the actual net taxable rental income shown on your tax return. For financial investments like cash, bank accounts, term deposits and shares, Centrelink applies a deemed earning rate to the total value of those assets and counts that deemed income under the income test.
Does my family home count toward the assets test for the age pension?
No. The family home is excluded from the assets test. Centrelink counts other assets such as super balances, investment properties, cash, cars and other investments when assessing eligibility and payment rates.
At what age can I access my super and when will I be eligible for the age pension?
You can retire from full‑time employment and access your super from age 57 in the example given, but age pension eligibility does not start until age 67. Accessing super earlier does not automatically make you eligible for the age pension.
How much can I have in super and other assets and still qualify for the full age pension?
According to the example in the article, under the assets test a single person could have up to $186,750 in assets (including super, a car and other investments) and still receive the full age pension. Individual situations vary, so check your own circumstances against current limits.
If I’m over 60, are super withdrawals taxed and will they count as income for Centrelink?
If you are over 60, amounts withdrawn from a taxable super fund are tax‑free. However, amounts held in super are counted under the assets test and may be subject to deeming rules if you are not taking a super pension. Where a pension is paid from super, Centrelink does not count the full payment as income — it reduces the amount by a purchase‑cost figure based on the value of the super when the pension started divided by life expectancy at that time.
How does a transition‑to‑retirement pension or moving balances into super affect Centrelink assessments?
Amounts held in super, including transition‑to‑retirement balances, are counted under the assets test. If you do not take a pension, deeming rules may be applied to the super balance. If you start a pension from your super, Centrelink treats income from that pension differently by applying a purchase‑cost reduction rather than counting the full payment as income.
Will higher employer super guarantee contributions mean I won’t need the age pension?
The article notes that while increased employer super contributions have boosted retirement savings for many baby boomers, these contributions may have come too late for some people. As a result, many will still need the age pension to supplement their retirement income — the pension amount will depend on the value of their assets (excluding the family home) or the income from their investments.
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