The proper help can be a benefit – age pension

About two-thirds of Australians are entitled to at least a partial age pension (i), so most of us need to understand how it works and determine what role we want it to play in our retirement plan.

         

 

The age pension provides key benefits to retirees. It pays an income stream until death that is adjusted for inflation, providing a bulwark against poverty and higher prices in our later years.

Even though age pension benefits may sometimes be quite small, the fact that they continue until death can help manage the risk that you may live longer than planned for in retirement. For example, a male/female couple both aged 67 today has a 50 per cent chance that at least one of the couple makes it to age 90 and a 5 per cent (1 in 20) chance that one of them makes it to age 99 (ii).

Because the age pension is means tested and personal situations and goals vary so much, this is one of the occasions when it makes sense to consider using a financial advisor to help understand the rules and factor the age pension into your broader retirement financial plan.

To decide how much age pension you are entitled to receive, the government considers your assets and your income. The level of pension received is based on which of those means tests produces the lower benefit.

On a basic level, the lower your assets and income, the more age pension you will be entitled to as its role as a safety net kicks in up to the maximum amount of $843.60 a fortnight for a single pensioner and $635.90 each for a couple, as at March 2019.

A financial advisor experienced in the interaction of the social security and superannuation systems can help you understand how these rules work and in particular the key break points where benefits reduce.

As you can see from this chart, the benefits drop off quite steeply at certain asset levels.

Understanding the impact of wealth on the age pension received

An advisor can also help you make decisions about how these breakpoints interact with your financial goals.

For example, consider the couple at Point A in the chart. If they start drawing down their assets to increase their annual spending or make a one-off purchase, they will also increase their yearly age pension benefit. This might be a wise move for some couples but not for others. Let's say this couple had identified leaving money to their children or setting aside funds for aged care as a financial goal. In those cases, the couple might do best to preserve and possibly grow, rather than spend, their assets, to achieve the goal.

Financial advisors can also guide you through other key considerations, including:

Rules on the treatment of annuities for means testing
Pension loan schemes to increase age pension using home equity
Links between age pension and related benefits, such as the Commonwealth Seniors Health Card
To learn more on the age pension and on creating financial security in retirement, check out our latest research on the topic.

 

i  According to the Australian Institute for Health and Welfare 
ii  “The role of the Age Pension in your Retirement Plan,” p. 3.

 

Robin Bowerman
Head of Corporate Affairs at Vanguard.
09 April 2019

 

More Articles

TRANSITIONING INTO RETIREMENT: WHAT YOU SHOULD KNOW

Deciding on your retirement funding options comes down to personal choice. . If you’re close to...

Read full article

The Deadliest pandemics in History

Check out the Deadliest pandemics in...

Read full article

Middle-to-higher incomes boosting SMSF growth

The SMSF sector experienced healthy growth over the March quarter, with men and women on middle-to-higher...

Read full article

The superannuation changes from 1 July

The super changes on the way from the start of the 2024-25 financial year. . A number of...

Read full article

Investment and economic outlook, May 2024

Region-by-region economic outlook and latest forecasts for investment returns. . For the last...

Read full article

Downsizer contributions can be time critical

With the expansion of the downsizer contribution, the timing of when it is used can affect how to use...

Read full article

Deeming freeze a win for Age Pensioners

Why the decision to keep deeming rates on hold may be a window for interest rates.   . In...

Read full article

Plan now to take advantage of stage 3 tax cuts

With the stage three tax cuts set to be implemented in around six weeks, opportunities for tax-saving...

Read full article

Sofie Korac is an Authorised Representative (No. 400164) of Prudentia Financial Planning Pty Ltd, AFSL 544118 and a member of the Association of Financial Advisers.

Financial Advice Sydney and the North Shore Office based in Gordon NSW

Financial Services Guide - Disclaimer & Privacy Policy

^