How does the Australian Age Pension work?

Around 80% of Australians who have reached Age Pension age are currently receiving the Age Pension in full or in part.  The remaining 20% are either ineligible due to the income and assets test or have not applied.

At some stage in their retirement, most Australians will be eligible to claim a Part or a Full Age Pension. You may not foresee yourself as being eligible to claim the Age Pension, but if you draw down on previous savings, including superannuation – this may be all you need to fall within the eligibility criteria.

The Age Pension aims to provide assistance to those who have no or limited means of supporting themselves financially to meet the costs of living in retirement. To be eligible, an applicant will need to meet the following criteria:

  • Be of Age Pension age,
  • Pass the Residency Test,
  • Pass the Age Pension income and Age Pension assets test.

1. What is the Age Pension age?

This depends on your date of birth, but effective from 1 July 2017, the Age Pension age is increasing from 65 to 65.5 until it reaches age 67 in July 2023.

To understand which age will apply to you, we have prepared the following table:

  • If you were born before July 1952, your Age Pension age is 65 years.
  • If you were born after December 1956, then you will be eligible to apply for the Age Pension from the age of 67.
  • Anyone born after June 1952 and before January 1957 has an Age Pension age of 65.5 years, or 66 years, or 66.5 years.
Commencement date Age Pension age Affects people born
65 Born before July 1952
From 1 July 2017 65.5 From 1 July 1952 to 31 December 1953
From 1 July 2019 66 From 1 January 1954 to 30 June 1955
From 1 July 2021 66.5 From 1 July 1955 to 31 December 1956
From 1 July 2023 67 On or after 1 January 1957

 

2. What is the Australian Residency Test?

To be eligible for the age pension you must have been an Australian resident for at least 10 years, or satisfy one of the residency exceptions. For instance, having lived (or worked) in a country that has a social security agreement with Australia (refugees or former refugee, etc.)

Subject to legislation, from 1 July 2018, individuals claiming the Age Pension in the future, will need to prove 15 years of continuous Australian residence instead of 10 years to be entitled for the benefits, however, certain exceptions also apply.

3. What is the Age Pension Income and Assets Test?

The Assets Test examines your existing assets for the purpose of determining your Centrelink benefits entitlement. Different thresholds apply depending on whether you are married or single and whether you are a homeowner or not.  Generally you are entitled to maintain a level of assets, beyond which the maximum age pension benefit entitlement is reduced. You may qualify for a part pension if your assets exceed the threshold but are below the maximum allowable limit.

The Income Test is also used to for the purpose of determining your Centrelink benefits entitlement. The test includes amounts earned or received, with deeming rates applying to financial investments. For Age Pension eligibility, you are entitled to receive an amount of income, beyond which the maximum benefit entitlement is reduced. Above that amount you may qualify for a part pension providing your income does not exceed an upper maximum limit.

You will not be eligible for the Age Pension if you fail one of these tests.

Since 1 January 2017, the Age Pension assets test became much stricter for those seeking a PART Age Pension. The change means a couple can own just over $800,000 in assets (in addition to the primary residence) before they lose the entitlement for Age Pension.

Taking effect from 1 July 2017, the income test and assets test have been increased slightly with CPI increases. The regular indexation of Age Pension income and assets test thresholds means that more eligible Australians can now earn more income and can own more assets and still be eligible for a Full or Part Age Pension.

If you are looking to maximise your saving capacity for future retirement, or you want to speak with someone who can help educate you on pre-retirement planning, pension arrangements and investment strategies, contact United Global Capital today for a no cost, no obligation consultation on 03 8657 7640 or email info@ugc.net.au to learn more.

The information contained in this article is General in nature and has been prepared without taking into account your objectives, financial situation and needs. When assessing any investment you should also consider that past performance is not a reliable indicator of future performance

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Joel Hewish

Joel Hewish

CEO / Chief Financial Strategist at United Global Capital
B.Bus (Bank & Fin), GDipAppFin, GCertFinPlan
Authorised Representative No. 416387
Joel is the founder and CEO of UGC.
He is a licensed financial advisor with 15 years experience assisting clients grow, manage and protect their wealth.
Joel Hewish