10 ways to maximise your Age Pension

If you’re heading towards or are in retirement, there are ways to boost Age Pension payments. Here are 10 tips to get you started.

Two million seniors rely on the Age Pension for retirement income, according to the Australian Institute of Health and Welfare. The pension is currently available from age 66.5, but by mid-2023, you’ll need to be aged 67 or over.

As a source of income, the Age Pension has never offered a road to riches.

As of 20 March 2022, the maximum payment (including supplements) is $987.60 per fortnight for a single homeowner, or $1,488.80 each fortnight for a couple combined.

It’s hardly a king’s ransom. And faced with rapidly rising living costs, age pensioners can feel the pinch more than most. That makes it worth embracing ways to maximise pension payments.

We offer 10 suggestions that can make it happen but before we look at those it’s important to understand how the Age Pension works.

Age Pension entitlements are based on two tests – the assets test and the income test.

Under the income test, single age pensioners can earn up to $180 per fortnight or $320 for couples, before their pension is impacted. The reduction can be severe, with pensioners losing 50 cents for every dollar earned over these limits.

That leaves the assets test as a chief means of maximising Age Pension payments. A single homeowner can hold up to $270,500 in assets to receive the full pension, or up to $599,750 for a part pension. For a couple who own their home, the maximum payment applies if you own assets worth less than $405,000, with the pension cutting out altogether for combined assets valued at more than $901,500.

In simple terms, for every $1,000 in assets you hold above the asset limit for the full Age Pension, your pension payment drops by $3 per fortnight, or $78 annually. This is known as the ‘taper rate’. And it can be the key to working out how much more you can pocket through the following strategies.

1. Value personal assets at market value

Centrelink doesn’t just consider the value of financial assets such as superannuation or shareholdings as part of the assets test. Personal assets such as home contents, jewellery, laptops, cars, boats and caravans are also considered.

It can be easy to overestimate the value of these assets, especially after a lifetime of using their replacement value to organise home insurance cover.

When you’re applying for the Age Pension, Centrelink is interested in the market value of personal assets. That means what your assets are worth if you held a garage sale or tried selling them on eBay.

Seen through this lens, the value of personal assets can be surprisingly low. So, do some online research to know what your personal assets are really worth.

Potential boost: Valuing your personal assets at, say, $10,000 instead of $20,000 can potentially boost your pension by $30 each fortnight.

2. Update asset values regularly

Personal assets tend to depreciate over time. This especially applies to cars, which lose value rapidly, particularly in the first few years.

The thing is, it’s up to you – not Centrelink – to revise the value of your assets. It doesn’t happen automatically. Getting into the habit of reassessing asset values, and reporting this to Centrelink at least annually, can increase your pension.

Potential boost: Let’s say that the new car you purchased when you first applied for the Age Pension cost $40,000. One year later, the car may be worth just $32,000. Informing Centrelink of the $8,000 drop in value can mean a pension uptick of $24 fortnightly.

3. Pay down debts

“Most debts are not offset against assets for means testing. So, if you have a loan secured against your home or even credit card/personal loans, it makes sense to pay down debt,” Anne Graham, senior financial planner with Story Wealth Management, explained. Reducing debt also helps you save on interest charges.

Potential boost: Using cash savings to pay off a $10,000 car loan can possibly add an extra $30 to your fortnightly pension.

4. Reduce assessable assets

Ms Graham noted that renovating your home or spending money on repairs and maintenance,  will add to the value of your property (which is exempt from the assets test), while potentially reducing other assets, such as cash holdings. And this, she said, can change your pension eligibility.

Money spent around the home can also mean valuable savings on future upkeep expenses as well as making the property more suitable for senior living.

Potential boost: Using $25,000 in cash savings or super to upgrade your kitchen or bathroom can potentially add an extra $75 to your fortnightly pension.

5. Take advantage of gifting

Every penny counts in retirement, so why give money away? Well, it can be a way of giving adult children a financial helping hand into the property market without taking on the responsibilities of a home loan guarantor. Or it can be an opportunity to assist a grandchild pay uni fees, minimising their future HECS-HELP debt.

Gifting can also reduce assessable assets, and deliver an increase in Age Pension payments.

Strict rules apply. No matter whether you’re single or part of a couple, the sum you can gift is limited to:

• $10,000 in one financial year, or
•  $30,000 over five financial years – this can’t include more than $10,000 in a single financial year.

If you exceed these limits, Centrelink can count the excess in your assets test, or apply deeming and assume you’ve earned income on the cash given away, which will be included in your income test.

Potential boost: Gifting, say, $10,000 in one year, can possibly raise your pension by $30 fortnightly.

6. Shift super to a younger spouse

If there’s a reasonable age gap between you and your spouse or partner, you may be able to shift some super from your fund to theirs, and pocket an increased pension.

“Superannuation is not counted as an asset for people under age 67,” said Ms Graham. “So for a couple, consider contributing or moving funds from the older person’s super fund to the younger spouse’s super.”

There are a few catches. Limits apply on how much you can withdraw and recontribute to a spouse’s super fund. Moreover, there can be tax implications. So, it’s an area where professional advice can help.

Potential boost: If you could shunt, say, $20,000 out of your super and into the fund of a younger (below pension age) spouse, the result could potentially be a $60 uplift in fortnightly pension payments.

7. Consider a lifetime income stream

“Consider investing in annuities, many of them are favourably assessed by Centrelink,” suggested Ms Graham.

In fact, since 1 July 2019, lifetime income streams purchased with super savings are favourably treated under both the income and assets test.

Only 60% of income payments received from a lifetime income stream are included in the income test. And, broadly speaking, just 60% of the purchase price of a lifetime income stream is included in the assets tests (until age 84, with 30% of the purchase price included thereafter).

This is very different from other super-based income streams such as market-linked pensions, where 100% of the investment is assessable under the assets test.

There’s a catch though. While lifetime income streams pay a regular income for life, you effectively give up the option to withdraw lump sums, and there may be no death benefit payable to your estate when you die. That makes it essential to weigh up this option carefully.

Potential boost: Investing $80,000 into a lifetime income stream would mean only $48,000 (60%) is assessed by the assets test, leaving $32,000 excluded. This could provide an extra $96 in fortnightly age pension compared to investing the same $80,000 in a market-linked pension.

9. Prepay your own funeral

None of us like to plan for our own demise, but it can put extra cash in your pocket today. Funeral costs paid in advance don’t normally count in the assets test. But you’ll need to meet a number of conditions.

If you choose to prepay a funeral director, be sure to get a contract that spells out the services you’ve paid for, noting there are no more costs to pay.

Or, you could invest in a funeral bond. Your funeral bond won’t count as an assessable asset if:

• you have assigned it to a funeral director
• it’s for fully prepaid funeral services
• you have a contract that sets out the services and says they’re paid in full.

Annual limits apply to funeral bonds for the assets test. In the 2021-22 financial year the limit is $13,500.

Potential boost: Investing $13,500 in a funeral bond could lift your fortnightly pension by $40.50.

9. Rethink estate plans

Ms Graham noted that for a couple it may be worth “considering estate planning options such as leaving some assets to children rather than the surviving spouse”. This can add to the surviving spouse’s pension, but Graham cautioned you should only do this if you can afford to do so.

10. Tap into free advice

Remember, there is a limit to how much you can receive through the Age Pension – no matter how much you scale back your assets. So good planning is a must.

Professional financial advice can set you on the right track to make the most of your super and other assets while maximising pension payments.

If paid advice is beyond your budget, contact Centrelink’s free Financial Information Service on 132 300.

Cover image source: fizkes/Shutterstock.com