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Your superannuation can potentially affect how much, if any, Age Pension you receive in several ways. As well as the amount you have in super, your partner’s age can have an impact as can what you do with any super payments you access.
How the Age Pension is assessed
For a detailed explanation of how the Age Pension is assessed, see SuperGuide article Case studies: How is the Age Pension assessed? We’ve also provided a quick overview below.
You are not eligible for the Age Pension until you reach Age Pension age, which depends on your date of birth. The current eligibility age is 66 years, but this will increase progressively until it reaches age 67 on 1 July 2023.
You also need to satisfy Australian residency requirements and pass both the assets and income tests. The assets test looks at your assets (not including your home) and the income test looks at your income. There are quirks with each of these tests and you can learn more about them at the links below.
The results of both tests are used to decide how much Age Pension you are eligible for. The more assets or income you have, the less Age Pension you receive. You need to pass both tests but the test which results in the lower Age Pension payment is the one that is used. For example, if the assets test says you are eligible for $500 per fortnight, and the income test says you are eligible for $400 per fortnight, the rate from the income test ($400 per fortnight) will apply.
Super and the Age Pension
It’s important to note that when you reach Age Pension age your super will count to both the assets and income tests.
The balance of your latest super statement is included in the Age Pension assets test.
In addition, deemed income from your super balance is included in your income test calculations even if you have not started a pension or income stream. This means you’ll be assumed to be earning a certain rate of return on your super pension account balance (i.e. the deeming rate), regardless of the actual return you are earn.
Deeming is also applied to your income from all other financial assets as part of the Age Pension income test.
From 1 July 2019 changes to the means test treatment of lifetime annuities for the purposes of determining Age Pension entitlements come into force. The changes will be grandfathered so that the new means test rules will only apply to lifetime annuities bought from that date. Learn more in the SuperGuide article Means test treatment of lifetime annuities from 1 July 2019.
Accessing your super
You can access your super once you have reached your preservation age and satisfied a condition of release (such as retiring from the workforce or turning 65).
Your superannuation preservation age is between the ages of 55 and 60, depending on your date of birth. It shouldn’t be confused with your Age Pension eligibility age. You can discover your Age Pension and preservation age with our Retirement age reckoner.
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If you can’t access your super after you reach your Age Pension age, you can apply to Centrelink to potentially have your super exempted from both the asset and income tests.
Couples with a partner below Age Pension age
For a couple with a younger partner below Age Pension age, the younger partner’s super won’t be counted in their assets and income tests unless they have started receiving a super pension, income stream or annuity that commenced after 1 January 2015. Super pension income streams are available tax-free to anyone in Australia who is over the age of 60 and meets a super condition of release.
The value of the younger partner’s assets is included in the older partner’s assets test and their income is also included in their income test, even though the younger partner won’t be receiving the Age Pension.
There are higher thresholds in both tests for couples. If one member of a couple receives the Age Pension, they receive half the Couple rate, not the Single rate.
Once the younger partner reaches Age Pension age their super will be counted to both the assets and income tests, even if they haven’t started to take a super income stream, but the younger partner can then also apply for the Age Pension themselves.
Example 1
Margaret is under the Age Pension eligibility age, but her partner Peter has reached it. Neither of them has started a super pension.
Peter’s super will be included in their combined assets test, but not Margaret’s (though her other assets would be). Peter’s deemed super income would also be included in their income test.
When Margaret reaches her Age Pension eligibility age, her super balance will be counted in their combined assets test. Her deemed income would also be included in their income test.
Example 2
Laura is under the Age Pension eligibility age, but her partner Jim has reached it.
Laura started a transition-to-retirement income stream last year.
Because she has done this, her super balance would be included in their assets test (along with Jim’s), and her deemed income would also be included in their income test (along with Jim’s).
What about lump sums from your super?
If you withdraw a super lump sum, the lump sum does not count as income for the income test, but what you do with those funds can affect your Age Pension. These funds could potentially be included in your asset and income tests.
For example, if you use your super funds to buy an income stream like a super pension or an annuity, the investment balances of those types of products will have the deeming rate applied to them for income test calculation purposes.
If you invest the funds in assets (other than your residential home), they’ll be included in your assets test. It’s important to remember that your residential home is not included in the Age Pension assets test.
Below are some other common examples of the treatment of lump sums, depending on how they are spent or invested.
Example 3
Terry withdraws $50,000 from his super as a lump sum and uses it to pay off his mortgage so he becomes debt-free.
This amount will not be included in his asset or income tests.
Example 4
Michelle withdraws $100,000 from her super to buy shares.
This amount will be included in both her assets and income tests for the Age Pension. The value of the shares will be added to her assets for the assets test.
She will also be assumed to earn the deeming rate when calculating income, she earns from the shares as part of the income test, regardless of whether the returns she receives are higher or lower than the deemed amount.
Example 5
Grant withdraws $20,000 as a lump sum from his super and puts the money in his bank account to help with day-to-day living expenses.
This amount will be added to the value of his assets for the assets test. He will also be assumed to earn the deeming rate on these funds for income test calculation purposes.
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