Keep an eye on safety nets – you never know when you might need one

One of the great things about Australia – and why it has a more even distribution of wealth than many other first world countries – is the fact that we have popular and widely used universal safety nets.

For health there is Medicare, for those who need income support Centrelink and in the case of the aged, there is the age pension (also through Centrelink) – even if there is a strong emphasis on providing for your own retirement by saving through superannuation.

Even if you have a secure income and investments, it is always worth keeping an eye on how these safety nets are operating and at what levels.

Planning to use part-pension is a valid strategy

That is important for the age pension, with many financial planners now using an investment strategy in conjunction with qualifying for a part pension as a way of improving living standards even if being a long-term, fully self-funded retiree might be out of the question.

This is particularly the case for women, many of whom have less substantial superannuation balances due to working breaks but still face rising living costs including rent.

The latest six-monthly updates to the age pension have just been released and are effective from 1 July.

Pension test limits have just changed

One thing that hasn’t changed is the pension itself, which remains at $952.70 a fortnight for a single person and $718.10 a fortnight each for a couple.

What has changed a little is the levels at which both the asset test and the income test starts to taper, which is very important information for those planning a hybrid approach of relying on a part-pension plus their private savings to support their lifestyle in retirement.

The lower asset limits are now $270,500 for a single pensioner and, for a couple, $405,000.

When these levels are exceeded, the age pension starts to taper until it reaches the upper cut-off point, where no pension is payable.

Pensions taper for higher incomes and assets

The base income threshold is $320 a fortnight for a couple and $180 a fortnight for a single.

The cut-off point for a homeowner couple has gone up to $884,000 and, for a single pensioner, $588,250.

Those in the private rental market that don’t own a house have different numbers – $1,100,500 for couples and $804,750 for a single person.

The income test cut-off points are now $83,002.40 a year for a couple and $54,220.40 for a single.

The way the system works, applicants are tested under both the assets and income tests, with the test that gives you the lowest pension being the one that is applied.

Centrelink does not include the family home in the assets test and household items including cars and furniture are valued at second-hand prices rather than replacement value.

This system makes the combination of the two tests quite important – too much income and you will be excluded on these grounds – too many assessable assets and that could count you out of a pension.

That is where the financial planning aspect comes in, with a good planner able to rearrange your affairs to maximise the pension and maintain a good standard of living for longer.

Lifetime pensions can play a big part

One example of this sort of planning would be the use of lifetime pension products that are now becoming available, with the money used to buy the lifetime pension product no longer considered for the assets test.

Such products can be particularly useful for retirees who currently fall a little above the assets test, allowing them to qualify for a part-pension and greatly increase their disposable income.

Qualifying for a part-pension using this method is not a rort – indeed, the Federal Treasury has been pleading with the super industry for many years to develop lifetime income products.

Combining a lifetime pension with a part-age pension and some remaining investments could be a great combination for many retirees, improving income and adding stability and certainty to finances – although lifetime pension products may vary up or down a little each year.

It might be a little complex but having a safety net for the aged pension is one of the many great things about living in Australia.

Combined with innovations such as lifetime pensions and the ability to manipulate asset and income levels a little to qualify for at least a part-pension, this is one safety net that is well worth keeping an eye on.