The social security means test rules for lifetime income streams
Acknowledging the importance of lifetime income streams in retirement, the Government changed the Age Pension means testing rules on 1 July 2019 to ensure that lifetime income streams are fairly and consistently assessed under the assets and income tests (known as the social security means tests). The rules are designed to support the use of certain lifetime income streams which feature payments for life, regardless of how long a person may live, and reducing access to capital over life expectancy. These rules can provide what can be attractive means testing outcomes for retirees.
It is important to understand that the rules only apply to an investment in a lifetime income stream made on or after 1 July 2019. The rules do not apply to account-based pensions or term income streams (including term annuities). Also, for any lifetime income stream investment made before 1 July 2019 their prior rules will continue to apply.
Means testing
Your rate of Age Pension is calculated under both an assets test and an income test. The test resulting in the lowest rate will apply.
Assets test
The level of assessable assets you own are assessed against the assets test thresholds which vary depending on your home ownership and relationship status. For every $1,000 of assets in excess of the lower threshold, your rate of Age Pension reduces by $3.00 per fortnight, reducing to zero once your assets reach the upper threshold.
For lifetime income streams that commence on or after 1 July 2019 the rules will generally assess:
- 60% of the purchase price of the lifetime income stream until age 84, subject to a minimum of 5 years; and
- 30% of the purchase price thereafter.
This concessional assessment can be attractive compared to alternate investment structures where 100% of the asset is assessable.
Where your Age Pension is being reduced because of the assets test, an investment in a lifetime income stream could immediately improve your Age Pension eligibility.
Effective 20 September 2024, the assets thresholds are as follows:
|
Lower threshold |
Upper threshold
|
Homeowners
|
|
|
| Single |
$314,000 |
$695,500 |
| Couple combined |
$470,000 |
$1,045,500 |
| Non-homeowners |
|
|
| Single |
$566,000 |
$947,500 |
Couple combined
|
$722,000 |
$1,297,500
|
Your upper threshold is higher if you are eligible to receive Rent Assistance with your pension.
Income test
Income from various sources are assessed against the income test thresholds, which vary depending on relationship status. The way income is determined for this test depends on the nature of the income or investment.
For every dollar of income in excess of the lower threshold, your rate of Age Pension generally reduces by $0.50 per fortnight, reducing to zero once your income reaches the upper threshold.
For lifetime income streams that commence on or after 1 July 2019, the rules will assess 60% of payments under the income test. For example, where a lifetime income stream pays an annual income of $5,000, only $3,000 will be assessed under the income test.
This may be more or less than the income derived from alternate investments but is generally seen as an attractive treatment.
Effective 20 September 2024, the income thresholds are as follows:
|
Lower threshold
|
|
Upper threshold
|
|
|
Fortnightly |
Annual |
Fortnightly |
Annual |
Single
|
$212
|
$5,512 |
$2,500.80 |
$65,020.80 |
Couple combined
|
$372 |
$9,672 |
$3,822.40
|
$99,382.40
|
Your upper threshold is higher if you are eligible to receive Rent Assistance with your pension.
It is important to note that different investments or investment structures (including lifetime income streams) are treated differently under the means tests and can result in different Age Pension eligibility.
Determining whether and how much you are entitled to can be complicated. A financial adviser can help you determine your Centrelink entitlements.
Working after Age Pension age
If you choose to work past Age Pension age, there are programs in place which could make this financially beneficial.
Work Bonus
The Work Bonus was introduced in 2009 to encourage those over Age Pension age to continue to work and to make it more financially beneficial for them to do so. Its benefits were further increased on 1 July 2019.
Any eligible age pensioner can earn up to $300 per fortnight without it being assessed as income under the pension income test.
This doubles for couples where both are working - both parties may have the first $300 per fortnight of their own employment income not counted. For those with irregular or seasonal income, unused portions of the Work Bonus can be banked up to a maximum of $7,800 at any one time. Additionally, from 1 January 2024, new recipients of the Age Pension will receive an upfront one-off Work Bonus income bank credit of $4,000.
Concession cards
There are several different types of concession cards so it pays to know your entitlement. The type of card you are given is determined by the Centrelink or DVA benefits which you are receiving.
The concession cards which are available are as follows:
Pensioner Concession Card (PCC)
PCCs are issued by Centrelink to those receiving the Age Pension. As the holder of a PCC, you are entitled to reduced cost medicines under the Pharmaceutical Benefits Scheme (PBS) and various state and territory government concessions, which may include reductions on property and water rates, energy bills, motor vehicle registration and public transport. State and territory governments and local councils offer different concessions.
Low Income Health Care Card (LIHCC)
If you do not qualify for the Age Pension and therefore do not receive a PCC, you may be entitled to an LIHCC if you have assessable income below certain thresholds. A LIHCC entitles you to the same pharmaceutical benefits as a PCC, but other concessions may vary.
Commonwealth Seniors Health Card (CSHC)
Self-funded retirees who are of Age Pension age, but do not qualify for the Age Pension, may be eligible for a CSHC if their annual adjusted taxable income + deeming from certain account-based pensions is below the following thresholds:
• $99,025 (singles)
• $158,440 (couples combined)
Holders of a CSHC are entitled to discounts on prescription medicines through the PBS. You may also qualify for additional health, household, transport, education and recreation concessions which may be offered by state or territory and local governments and private providers.
Veterans
If your pension is issued by the Department of Veterans’ Affairs (DVA) then you may be entitled to a PCC, CSHC or DVA Health Card.
Accessing your Age Pension overseas
It is possible to get the Age Pension when you’re overseas, whether you have left Australia on a temporary or permanent basis.
However, if you returned to reside in Australia within the last two years and were transferred to or granted an Age Pension within that time, your pension will be stopped when you go overseas, unless different provisions apply under an international social security agreement.
Otherwise, if you leave Australia for less than 6 weeks, your Age Pension rate normally won’t change.
If you leave Australia for more than 6 weeks, both your Pension Supplement will drop to the basic rate and your Energy Supplement will stop.
If you remain outside Australia for longer than 26 weeks, your pension will be reduced to a proportional rate based on your ‘Australian working life residence’. If you leave Australia permanently, the rate of Pension Supplement you receive will reduce on departure and the energy supplement will cease.
There are different rules which apply to other payments and these can be found on the Services Australia website. If the country to which you are moving has an International Social Security Agreement with Australia, then you may be able to receive your payments for longer and at a different rate. To obtain official information about payments paid while outside Australia, we recommend that you visit www.servicesaustralia.gov.au.
Additional financial assistance
Centrelink also offers financial assistance packages for those who need extra support from time to time.
Home Equity Access Scheme
If you are over Age Pension age and need additional income, you may be able to access capital tied up in your property assets under the Home Equity Access Scheme. This was formerly known as the Pension Loan Scheme prior to 1 January 2022.
The Home Equity Access Scheme is a voluntary arrangement which provides support in the form of a loan provided by Centrelink or DVA, for a short or indefinite period. It is paid in regular fortnightly instalments. An annual interest rate of 3.95% (compounded fortnightly) is charged on the outstanding loan balance.
Advance Payments
An Advance Payment is a lump sum payment of some of your future pension entitlement and you will be required to pay it back.
As an age pensioner, you can request one, two or three Advance Payments during a six-month period, as long as the total amount falls within the minimum and maximum amount.
As of 1 July 2024, these amounts are $529.15 and $1,587.45 respectively (for each member of a couple the amounts are $398.85 and $1,196.55). This amount is then repaid from your following 13 fortnightly payments. Centrelink will only advance you an amount which it deems will not cause you financial hardship in making the repayments.
Financial Information Services
Centrelink provides a Financial Information Service which enables you to discuss your finances, how to control your debt, which payments may be available to you and how to make informed financial decisions.
You can make an appointment to speak to a Financial Information Services Officer (FISO) at any time; you do not need to be a current Centrelink customer. To make an appointment, call 132 300.
Rent Assistance
Rent Assistance is paid to those in receipt of an income support payment, who pay private rent. Those who rent from a housing authority will not be eligible.
Rent Assistance rates if you do not have dependent children
| Family situation |
Maximum payment per fortnight |
Maximum payment is paid if your fortnightly rent is more than |
No payment if your fortnightly rent is less than |
| Single |
$188.20 |
$396.94 |
$146.00 |
| Single, sharer |
$125.47 |
$313.29 |
$146.00 |
| Couple |
$177.20 |
$472.87 |
$236.60
|
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