Age Pension rules that catch people out
The Age Pension rules are detailed, and they change regularly. Most of the costly mistakes we see aren’t about the headline thresholds, but about how particular decisions are treated. These are the ones that catch people out most often.
1. Giving money away
Helping children or grandchildren with a house deposit or wedding feels natural, but the gifting rules limit what you can give without affecting your pension: $10,000 a year, and no more than $30,000 over five years.
Anything above those limits is a deprived asset. It’s counted as if you still had it, and deemed to earn income, for five years from the gift. Selling an asset to family for less than market value, or forgiving a loan, counts as a gift too.
Gifts made more than five years before you apply for the pension aren’t counted, which is why planning early matters.
2. Deeming
Your financial assets, including bank accounts, shares, managed funds and account-based pensions, are deemed to earn a set rate of income for the income test, regardless of what they actually earn. Deeming rates change from time to time.
That means moving money into a higher-earning investment doesn’t increase your assessable income, while money sitting in a low-interest account is assessed as if it earned the deemed rate. It also means account-based pensions started after 1 January 2015 are deemed, while some older ones are grandfathered under the previous rules, which is a reason to think carefully before rolling an older pension over.
3. Selling or downsizing the home
The home is exempt from the assets test, but once you sell it, the proceeds aren’t. Proceeds you intend to use to buy or build a new home are exempt from the assets test for up to 24 months, but they’re deemed to earn income at the lower rate during that time. Anything left over after the new purchase counts as an asset. A downsizer contribution into super also counts once you’ve reached Age Pension age.
4. Granny flat arrangements
Transferring your home, or money, to family in exchange for the right to live in their home for life is a granny flat interest. If it’s set up properly and the value is reasonable, it isn’t treated as a gift. If the amount paid is more than the “reasonableness test” allows, the excess can be a deprived asset. Get advice, and put the arrangement in writing.
5. Funeral expenses
Prepaid funerals and funeral bonds (up to a limit) are exempt from the assets test, and paying for a funeral in advance reduces your assessable assets. Ordinary savings set aside for a funeral are counted.
6. Home improvements
Money spent on the home, such as repairs, renovations, a new kitchen or accessibility modifications, moves from assessable assets into the exempt home. It’s not a reason to overcapitalise, but timing major work before you apply can make sense.
7. Overvaluing your contents and cars
Household contents and personal effects are valued at what you’d get if you sold them, which is often far less than replacement or insurance value. Many people overstate them and lose pension as a result.
8. Not reporting changes
You generally have to tell Services Australia within 14 days about changes to your income, assets, relationship or living arrangements. If you don’t, you can be overpaid and have to repay the debt. Equally, report falls in your assets or income, such as after a market fall, so your pension can increase.
9. Assuming you won’t qualify
Thresholds are higher than many people think, and they’re indexed each March and September. Even a small part pension brings the Pensioner Concession Card and its discounts. It’s worth checking again when your circumstances or the thresholds change.
Get advice before making big moves
Gifting, selling the home, moving into aged care, or restructuring super can all change your entitlement for years. Clarity Wealth’s financial planners can model the effect before you act. See also how the Age Pension works and aged care costs.