Today we are sharing a refresher on the way the asset test is applied by Centrelink and how knowing the rules can help you to maximise your entitlements.
Why are both income and assets evaluated?
The Australian Age Pension is based on a means test that combines the income test and the assets test. Generally speaking, Centrelink will determine your income first. If this falls below the limit, it will then consider your assets. If either your income or assets are above the limit for a part-Age Pension, you will be ineligible for any Age Pension benefits.
If both your income and assets are below the limit, whichever one delivers the lower Age Pension payment will be applied.
Which assets does Centrelink define within the means test?
Centrelink has two broad categories for assets – exempt and non-exempt.
Exempt assets are mainly related to property or accommodation and include:
- principal home (and surrounding land up to two hectares on the same title)
- principal home, (if the applicant/s vacate it for up to 12 months or two years if entering a care situation)
- the proceeds from the sale of your principal home which are exempt for 12 months from the sale date
- any property or money left to applicant/s in an estate, which the applicants can’t get for up to 12 months
- residential aged care accommodation bonds
- some pre-paid funeral contracts
Non-exempt assets generally relate to personal and financial investments, including a partner’s assets, which are automatically included in a couple assessment. They include:
- Superannuation investments in an accumulation account (However if your partner is under Age Pension age, their super is not counted)
- Income streams
- Shares and managed investments
- Business or trust assets
- Loans to other people or businesses
- Some funeral investments (others may be partially or fully exempt)
- Assets that you have given away to children or others (referred to as gifting)
- Special disability trusts
- Boats and caravans
- Household contents
- Which of these assets are deemed to earn income?
- Financial assets have income deemed on them. Centrelink cannot accurately work out the individual returns across every older Australian’s assets every year. So, it applies a ‘deeming rate’ to certain financial assets which are likely to earn a return. The current deeming rates are historically low. They have been frozen until 1 July 2024 in order to give Age Pensioners some security on their returns in the wake of the covid pandemic.
The current rates are 0.25% on your financial assets up to $60,400 (Singles) or $100,200 (Couples) and 2.25% on your financial assets over these thresholds.
What can go wrong with asset reporting?
Well, it’s more than applicable to the reporting and evaluation of assets for Age Pension purposes. Here are a few common errors when assets are reported:
- Double reporting of income and assets
- Many people report their super fund (account-based pension) balance as well as the income stream from these same savings. There is no need to double report. You could end up missing out on Age Pension entitlements. You must report your super balance in the assets declaration. As per above, Centrelink will then deem this amount to earn a certain annual income and apply this within your application. If you also report the income you are receiving your income will be inflated unnecessarily.
- Overvaluation of assets
- Whilst your home contents and your car are not deemed, they still count towards the assets test. Most of us view the value of such assets through rose-coloured glasses. Make sure you check the resale value of your car and that you only value household contents at garage sale prices, not the amount you paid way back when, or the insurance replacement value. Overvaluation can cost you dearly when it comes to your actual fortnightly benefits.
And last, but certainly not least …
It’s hard to ‘untell’ Centrelink.
So, make sure you know the answers before contacting Centrelink. It’s very hard to change your mind once you have made a declaration.
Need more support?
A consultation supports you to assess any changes you might be able to make to maximise all Centrelink entitlements along with having a better understanding of your super which helps you assess all your options to make your super work even better.