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Age pension: do you qualify?

The age pension means tests changed on 1 January this year. This has significantly reduced the upper assets test for people receiving a part age pension. It has also substantially increased the lower assets test for people receiving the full age pension.



The age pension means tests changed on 1 January this year. This has significantly reduced the upper assets test for people receiving a part age pension. It has also substantially increased the lower assets test for people receiving the full age pension. 

For a couple homeowner, this upper test reduced from $1,178,500 to $816,000.  For a single homeowner the upper test lowered from $793,750 to $542,500 (these limits are indexed each quarter, so these amounts are slightly higher now).

These assets test changes means some SMSF members have either lost their age pension entirely or had it significantly reduced. 

In most cases, this loss of income will need to be replaced by other sources. For most SMSF members this means drawing down more funds from their own retirement savings and restructuring their investment strategy to ensure more cash is available to fund higher pension payments. 

Changes to the age pension may also affect the fund’s longevity. Consequently many SMSF trustees have had to take stock of their budget to ensure they have the income they need to fund their lifestyle well into retirement.

These changes have ramifications for self-managed super fund (SMSF) investors in retirement phase that are important for them to understand.

Taking stock

Rhiannon Kanoniuk is a director and practice principal of financial advice firm Pekada, which specialises in providing advice to SMSFs. 

She says one of the biggest issues for SMSF trustees around this issue is providing Centrelink with timely, updated information about their assets.

“The nature of SMSFs is that financial accounts may not be completed until well into the next financial year. It is common for members to have their pension temporarily suspended if they can’t provide this information on time,” she says.
 
In particular, Kanoniuk says SMSF members need to take particular care if they were in receipt of the age pension prior to 1 January 2015, as well as drawing an income stream from their fund at the same time.

“If they decide to restart their pension they may lose a more favourable income test assessment,” she says.

A common situation where this may be an issue for an SMSF member happens when fund members combine funds in accumulation and pension phase, allowing one member to start or re-start a pension.   

“Before 2015 income assessed from a super income stream was calculated using a formula made up of the purchase price of the pension, date of commencement, pension actually drawn and any commutations made,” explains Kanoniuk. This meant a lot of income streams had little to no income assessed. 

“From 2015 onwards, income streams are assessed like any other financial asset; which is they are deemed. Therefore members in this situation need to carefully assess the benefit of restarting a pension to make sure they are not in a worse position for age pension purposes,” she advises.

Steps to take

If you are in receipt of the age pension, Kanoniuk advises trustees to attempt as much as possible to have their SMSF’s financials completed within six months of the end of the financial year to avoid any headaches with a Centrelink information update. 

“Also this makes it relatively more easy to have a pension reinstated if it is suspended, which is a headache you would rather avoid,” she adds.
 
Kanoniuk has some other advice for SMSFs when structuring their assets so they qualify for a part pension. She notes as funds in accumulation phase are not assessed for Centrelink purposes until the member is age pension age, there may be a strategy opportunity for those in a couple with an age difference to park funds in the younger member’s accumulation account. 

“A lot of considerations need to be made prior to doing this, including thinking through the tax implications of leaving funds in accumulation phase, the income needs of fund members and the ability to meet contribution caps. Every situation is very different and it’s essential to think through the fund’s strategy in a holistic way, taking into consideration aged pension issues,” she advises.  

It may be worth SMSF trustees seeking professional advice around this to ensure they are managing the fund in the best way possible.
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