Superannuation and Age Pension means tests

Australian superannuation funds are savings arrangements to help you build financial resources for your twilight years.

Once you attain your Age Pension Age you are expected to access your superannuation to at least partly fund your living expenses. Therefore your superannuation will be included in your financial resources for the purposes of determining how much, if any, Age Pension you could collect.

In the early years of your working life your superannuation is building up in ‘accumulation phase’. Your compulsory Superannuation Guarantee Contributions are paid into your superannuation fund account. Contributions tax and insurance premiums are deducted. Hopefully your superannuation fund account balance grows as investment earnings, less expenses, are accumulated.

After retirement your superannuation moves into the ‘drawdown phase’ when you start taking money out to pay for your living expenses.

If you have accrued a retirement pension, usually from working in the public sector, then you will be receiving your superannuation in fortnightly instalments for your lifetime.
In contrast, most Australians are accumulating superannuation entitlements that could be paid as a lump sum on retirement. These retirees can choose how fast they take their money out of superannuation.

All superannuation accounts in drawdown phase count for the Age Pension means tests at Centrelink.

Cashing out all of your superannuation on retirement

When you retire you may take all of your superannuation as a lump sum to spend or invest as you choose. If you cash out all of your superannuation then you do have any ‘superannuation’ to report to Centrelink. After you have paid your debts, any remaining money from your superannuation payout will be included in your financial assets for the Age Pension means test.

Accumulating superannuation accounts are financial assets for Age Pension means testing

Seniors who continue working beyond Age Pension Age can choose not to start taking any superannuation benefits until age 75 years. These seniors who are still active in the workforce have a superannuation account in accumulation phase to collect their ongoing Superannuation Guarantee contributions from their employer.

Once you attain your Age Pension Age any superannuation accounts still in ‘accumulation phase’ will also be included in your ‘financial assets’. Hence your accumulation superannuation accounts will be included in your financial assets for the purposes of the Assets Test once you reach your Age Pension Age.

Your accumulation superannuation accounts will be included in your financial assets for the deemed financial income calculation. Thus at Centrelink your superannuation will be treated as though it were invested in financial assets even if you have actually chosen to invest your superannuation in real property or ‘infrastructure’.

If you have a younger partner, their accumulating superannuation accounts will be excluded from the means testing for your Age Pension until your partner attains Age Pension Age.

Allocated pension accounts and retirement income streams are financial assets for Age Pension means testing

Retirees with large amounts of accumulated superannuation often choose to have it released slowly from an ‘allocated pension account’. You may start an allocated pension before you reach Age Pension Age even if you are still active in the workforce.

Your allocated pension account could be held in your own SMSF, an industry superannuation fund or a public offer superannuation fund. At Centrelink, allocated pension accounts are also called personal retirement income streams.

Your allocated pension account will be included in your ‘financial assets’ if you apply for an Age Pension after 2015. Your partner’s allocated pension account will also be included in your total financial assets even if your partner is under Age Pension Age.

Thus the value of all of your allocated pension accounts and your accumulating superannuation accounts will be counted for the Age Pension Asset Test.

Your ongoing superannuation accounts will contribute to your deemed financial income for the Age Pension Income Test.

Public sector defined benefit non commutable superannuation pensions

Long ago public sector workers accrued retirement pensions. Many retired public servants, teachers and utility service workers are benefiting from fortnightly pensions that increase as prices increase. These public sector retirement pensions partially revert to a surviving spouse. Thus many widows are being paid retirement pensions from their partner’s superannuation fund.

If you cannot commute your retirement pension for a lump sum then it is excluded from the Asset Test assessment.

A retirement pension that you cannot trade for a lump sum, counts as Income for the Age Pension means tests. Centrelink update your Income amount each time an indexation increase is applied to your retirement pension.

If you were required to meet part of the cost of your superannuation pension by making regular member contributions then you might get a discount on the pension amount for the Age Pension Income Test. The maximum discount is ten percent (10%) of the superannuation pension paid where you contributed at least ten percent of the cost of a pension accrued as a civilian. Different discount rules apply for pensions payable in respect of Australian military service.

Privately funded ‘complying’ retirement pensions

At Centrelink, only retirement pensions that are guaranteed payable for your lifetime and cannot be commuted for lump sums can be treated as ‘complying’. These Centrelink rules about no lump sums cash outs from ‘complying pensions’ are very strict. Few corporate sponsored superannuation funds pay the type of lifetime pensions that comply with the Centrelink rules.

Complying pensions purchased superannuation pensions from their SMSFs are rare also. The few seniors who have privately funded complying pensions could have their pension payments counted for the Age Pension Income Test whilst being exempt from the Assets Test.

Most of the accounts backing pension entitlements in SMSF or private superannuation funds, are likely to be included in your financial assets for Age Pension means testing purposes.

Help to understand how your situation fits in the Age Pension system.

Christine at Financial Care Services writes this Age Pension Guide. She can help you to understand your Age Pension situation.

Ask Christine to help you navigate your Age Pension challenge.

Contact Christine at Christine@financialcareservices.com.au or call 03 9808 0338 to book a consultation.

Christine at Financial Care Services is experienced with Pension Applications and the many Centrelink financial means tests.
Financial Care Services helps seniors with Centrelink Pension issues. Christine at Financial Care Services could help you check if you are eligible for an Age Pension.
An estimate of your potential Age Pension amount before you apply could spare you a rejection letter from Centrelink.

Financial Care Services offers ‘personal financial factual information’ consultations to help you check your asset and income position against the Centrelink Pension means tests. Christine is also able to assist with filling in your Centrelink forms ready for you to sign. She will accompany you to a Centrelink office to lodge your Pension claim form and show your proof of identity documents.

Financial Care Services charges hourly rate fees for ‘personal financial factual information’ consultations, assistance with personal data collation, completing Centrelink forms and attendance at a Centrelink office with you. Email Christine@financialcareservices.com.au now for the Financial Care Services Client Services Guide and Financial Care Services Age Pension Personal Data Checklist.

Disclaimer This Age Pension Guide is based on our understanding of the current Social Security provisions. Your claim for a Social Security Pension will be based on your personal situation as documented to Centrelink and the Social Security legislation and Regulations in force at that date.

Updated October 2018