On 20 September, the latest age pension indexation increased the maximum Age Pension by up to $36.80 a fortnight for singles and $27.80 each for couples but deeming rates simultaneously rose by 0.5 percentage points. Under the income test, Centrelink assesses financial assets at higher assumed returns of 1.75% and 3.75%, which can significantly offset or cancel out the headline payment increase.
Key Takeaways
- Asset test limits increased, allowing single homeowners to hold up to $745,750 before losing pension entitlements.
- Maximum Commonwealth Rent Assistance increased to $223.80 a fortnight for singles and $211.00 combined for couples.
- Commonwealth Seniors Health Card income thresholds rose to $105,048 for singles and $168,076 for couples.
- Higher deemed income can reduce a single pensioner’s net fortnightly increase to as little as $8.
- Centrelink applies whichever calculation produces the lower payment, so asset-tested pensioners avoid the deeming penalty.
What Changed with Age Pension Indexation on 20 September
From 20 September, age pension indexation increased, the maximum Age Pension, but there is another change retirees need to have on their radar: deeming rates went up.
All of the recent headlines have focused on the increase to the maximum pension payment. For singles the maximum payment increased by $36.80 a fortnight, from $1,200.90 to $1,237.70. While for couples, the increase is $27.80 (each) a fortnight, taking the maximum (combined) pension to $1,866 a fortnight.
The changes also mean that the Asset and Income test cut limits are going up. In short, you will be able to have more before you lose the pension and some people who don’t qualify now may be able to following 20 September.
How Have the Asset and Income Limits Changed?
When it comes to the asset test, a single homeowner can have up to $745,750 in assessable assets and still receive some Age Pension, up from $733,500. For couples, the limit increased from $1.1025 million to $1.121 million. For non-homeowners, the limits increased to $1.01275 million for singles and $1.388 million for couples.
Under the income test the limit for singles increased by $73.60 per fortnight to $2,701.40 per fortnight and there’s an increase of $111.20 per fortnight to $4,128 per fortnight for couples.
And the “cherry on top”, Commonwealth Rent Assistance which is paid not just to private renters but can also apply to retirement villages and land lease communities also increased. The maximum payment for singles is $223.80 a fortnight and for couples $211.00 a fortnight (combined).
For those who don’t qualify for the Age Pension, the Commonwealth Seniors Health Card income limits increased to $105,048 per annum for singles and $168,076 per annum for couples.
But there is a sting in the tail for some retirees.
Deeming rates increased by 0.5 percentage points.
How Do Higher Deeming Rates Affect the Age Pension?
The deeming rate on financial assets up to $66,800 for singles and $110,600 for couples increased to 1.75 per cent with assets above the threshold deemed at 3.75 per cent.
That change to deeming rates creates an offset effect for people whose pension is reduced under the income test.
Let’s look at an example.
Example: A Single Pensioner
Suppose a single homeowner has $300,000 in financial assets. Under the current deeming rates, they would be deemed to earn $8,414/year or $323.62 fortnight and receive $1,152/fortnight
Without the change to the deeming rates, they would receive the full increase of $36.80, taking their pension to $1,189 per fortnight.
The change to the deeming rates saw the deemed income on $300,000 of financial assets jump up to $9,914 a year. That’s an extra $1,500 a year of assessed income.
The higher deemed income means an actual pension increase of just $8 a fortnight
They received an increase in their pension, but it’s nowhere near $36.80 a fortnight.
Why Check Both Pension Tests?
While the headlines are that pensions are increasing, you need to look at all of the changes and how they will affect you in light of your particular circumstances. Yes, there are higher pension and rent assistance payments and higher asset and income limits. But there are also higher deeming rates, which can offset a large chunk of the benefits you are expecting.
Of course, the Age Pension is calculated under an asset test and an income test, with whichever produces the least amount of pension applying. If it is the asset test that affects you then you don’t need to worry about the income test. It is crucial to understand how each test is affecting your potential payments and look at strategies to help manage each test.
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FAQs
How much did age pension indexation increase the maximum pension?
The September age pension indexation increased the maximum Age Pension by $36.80 a fortnight for singles. For couples, the increase was $27.80 each per fortnight, taking the maximum combined pension to $1,866 a fortnight. Your actual payment can differ depending on how the income and asset tests apply to your circumstances.
Did the asset test limits increase?
Yes, the asset test limits increased from 20 September. A single homeowner can have up to $745,750 in assessable assets and still receive some Age Pension. The applicable limit depends on whether you are single or partnered, and whether you own your home.
Did Commonwealth Rent Assistance increase?
Yes, Commonwealth Rent Assistance also increased. The maximum payment is $223.80 a fortnight for singles and $211.00 a fortnight combined for couples. The payment can apply to private renters and may also apply to people in retirement villages and land lease communities.
What are the new deeming rates?
The deeming rate increased to 1.75 per cent for financial assets up to $66,800 for singles and $110,600 for couples. Financial assets above these thresholds are deemed at 3.75 per cent. Deeming can affect pension payments assessed under the income test.
Can higher deeming rates reduce my pension increase?
Yes, higher deeming rates can reduce the pension increase for people affected by the income test. The example in this article shows how a higher assessed income can offset much of the maximum pension increase. The asset test and income test can produce different outcomes.
Why do I need to check both pension tests?
Your Age Pension is calculated under both the asset test and the income test. The test that produces the lower pension amount applies. Higher thresholds may help some people, while higher deeming rates may affect others, depending on their financial assets and assessed income.
The information contained in this article is intended as general information only and does not constitute personal financial advice, legal advice or professional advice. While care has been taken to ensure the information is accurate and up to date at the time of publication, rules, rates and circumstances can change.
