1 July marks the start of a new financial year and that always brings change.
The age at which people can qualify for the Age Pension has been increasing by six months every two years, from 1 July for people born on or after 1 January 1957 you will need to be 67 years old to be eligible for the Age Pension.
1 July also brings changes to the thresholds and cut off points for the Assets and Income tests used to calculate Age Pension. The changes will see part-pensioners receive an increase in their pension payments and some self-funded retirees will become eligible for the pension.
While the changes affect how the pension is calculated the maximum payment is unchanged, so people receiving the full pension will need to wait until September to see a change.
Below is a summary of the key changes.
The asset threshold is the amount of assets you can have before your payment is reduced. Your asset threshold is based on your relationship status (Single or Couple) and whether you are considered a Homeowner or Non-Homeowner.
For Single Homeowners the asset test threshold is increasing from $280,000 to $301,750 while for non-Homeowners it will increase from $504,500 to $543,750. Your home is not included in these assets.
For Couples who own their home the asset test threshold will increase from $419,000 to $451,500 and for non-Homeowners it will jump $50,000 from $643,500 to $693,500
How the Asset Test works
Under the asset test your pension is reduced by $3 per fortnight for every $1,000 of assets above the threshold. The formula basically means that for every $100,000 of assets you go over the threshold your Age Pension reduces by $7,800 per year.
The point at which you don’t qualify
The point at which you are not eligible for an Age Pension under the asset test has increased in line with the increase to the thresholds. Single Homeowners will have a cut-off point of $656,500 while for non-homeowners it will be $898,500. Couple homeowners will have a cut-off point of $986,500 and for non-homeowners $1,228,500.
The income threshold for Singles will increase from $190 to $204 per fortnight, for couples it will rise from $336 to $360 per fortnight.
The increase to Income threshold means a single pensioner can earn an additional $364 per year, while for couples it’s an extra $624 per year, hardly anything to write home about. But don’t forget that you can earn up to $11,800 up until the end of December through the work bonus which is in addition to the pension income thresholds.
How the Income Test works
Under the Income Test, once your income goes above the threshold your pension reduces by 50c per dollar. Income is not necessarily the income you earn or the taxable income, when it comes to your investments Centrelink apply the deeming rules. Deeming simply applies an assumed rate of income to your investments regardless what they actually earn.
Changes will be made to the deeming thresholds with the lower deeming threshold increasing to $60,400 for Singles and $100,200 for Couples. The deeming rates of 0.25% on the lower amount and 2.25% on the upper amount remain unchanged.
The Work Bonus
The Work Bonus enables pensioners to earn up to $300 per fortnight/$7,800 per year from work without affecting their pension. The work bonus is on top of the pension income threshold. There is a temporary credit of $4,000 which applies to the work bonus up until 31 December 2023, taking the amount pensioners can earn from work up to $11,800.
The point at which you don’t qualify
The point at which you are not eligible for an Age Pension under the income test has increased too. Singles won’t qualify for a pension once their income is at least $2,332 per fortnight and for couples it will be $3,568 per fortnight.
There is no change to Rent Assistance on 1 July. The government announced as part of the Federal Budget in May that Rent Assistance will increase by 15%. The change in Rent Assistance payments is expected to occur as part of the 20 September indexation.
Other changes worth noting include the Concessional Asset Value Limit for Special Disability Trusts will increase from $724,750 to $781,250 (an increase of $56,500)
The Retirement Village and Granny Flat extra allowable amount will increase from $224,500 to $242,000. This means that retirement village residents who pay less than $242,000 for their unit can be classified as a Non-Homeowner and qualify for rent assistance (subject to their contract).
The exempt funeral investment threshold will increase from $14,000 to $15,000
Some tips and traps for navigating the Age Pension
- Age Pension is calculated under an Asset Test and an Income Test, the test which determines the lowest amount of pension is the one that is applied.
- Couples are assessed based on the combined assets and income of the couple (regardless of legal ownership)
- Assets are generally assessed at the market value, gifts within the allowable amounts, prepaid funerals, funeral bonds up to $15,000 and superannuation balances prior to age pension age are not assessable assets. Some lifetime income streams can also have a full or partial asset test exemption.
- Higher payment rates and cut-off points apply to couples who are separated by illness.