Retirees losing big money by stalling with pension applications
If you snooze, you lose is one of those sayings that seems to particularly apply to Australians who retire.
Many of them assume – often quite wrongly – that there is no way that they will qualify for the age pension while many others put off applying, figuring it will be a waste of time and too much effort.
The bad news is that there is no such thing as a catch-up payment for the pension – it is a payment that is prospective from when you apply and it is definitely not something that will simply happen if you don’t act.
It is very common to hear of people who have put off applying for many years after they first became eligible, which is effectively like leaving money on the table that you will never make up.
Even worse, that delay may have resulted in chewing through more of your remaining superannuation or private savings, which could have been kept if an alternative government pension had been rolling in to the bank account.
About a third of retirees wait too long
Recent research by large superannuation fund Aware Super, found that 32% of retirees apply for the government age pension at least a year later than they could have.
Aware Super CEO Deanne Stewart said many retirees take two or three years after they retire to apply or believe they are not eligible because they are still working.
“It often comes down to the fact they are confused about the rules and often assume they are not eligible,” she said.
Still others delay applying because they assume they will not pass the Centrelink assets and income tests.
Rules are complex but tests are quite generous
While those rules are a little complex and can take a while to get your head around, in general terms you need to be aged 67 or above to apply, although you can put in an application up to 13 weeks before you become eligible.
The earlier you apply within this criteria, the greater the chance you won’t suffer any delays in your payments.
You also need to be an Australian resident, have lived here for at least 10 years and pass the income and assets tests.
These tests are more generous than many people believe and the test that produces the least amount of pension will be the one that is applied.
Assets test has exemptions
For the assets test, there are some assets that are exempt, including the family home, assets in superannuation under pension age, funeral bonds up to $15,000 for a single bond, an accommodation bond paid to an aged care facility and gifts that fall within the allowable limits.
There are different thresholds for homeowners and non-homeowners and it is important to realise that the valuation you should apply to things like cars, boats and home contents is market value, which is usually far lower than the purchase price.
For the income test, a single pensioner can earn $212 a fortnight and still be eligible for the full single pension of $1144.40 a fortnight, including all supplements.
Extra earnings on top
On top of that they can also earn up to $460 a fortnight from personal exertion that is not included in the income test under the revised work bonus rules, although this will not apply to those who have been on the pension since before January 1, 2024.
Under the assets test, the full pension is available for homeowner singles whose assessable assets are under $314,000 – rising to $470,000 for couples.
For non-homeowners the numbers are $566,000 and $722,000.
Once assessable assets exceed the lower threshold, the pension reduces by $3 a fortnight for each $1000 by which assessable assets exceed the lower threshold.
That means that a single homeowner can have up to $695,500 of assessable assets and receive a part pension while a single non-homeowner can reach up to $947,500.
Millionaires can still qualify
For a couple, the higher threshold is $1,045,500 for a homeowner and $1,297,500 for a non-homeowner.
It is important to note that even those on a quite small part pension still get access to health and other discounts that come with qualifying for a pension.
There are several online calculators that allow you to plug in your own numbers and work out if it is worth applying for a pension.
If you are close to qualifying, it is worth running through the online tests every year given that thresholds change as do your assets and income over time.
If all else fails, the health card beckons
Even if you don’t qualify for the pension itself, it is worth remembering that there are much more generous limits that apply for the Commonwealth Seniors Health Card, which can be gained by those with an income below $99,025 a year.
Longevity on the rise
With longevity increasing, there is also a chance that those who don’t qualify for the age pension at 67 could qualify a decade or even two decades in the future so it is worth considering eligibility over time and when circumstances change such as entering aged care.
One thing is for sure, if you leave applying for the age pension too late, there is no refund available for the money you effectively left on the table.
Which is why spending a bit of time with an online calculator every year after the age of 67 can be well worth the trouble.