New Centrelink rules affecting Government age pensions and other benefits

Do you need to take action now?

If you are over 55 and potentially eligible for a Centrelink benefit, you need to read this. You may need to take action.

New rules are coming on 1 January 2015 that could reduce your Centrelink benefits. These rules change the way that superannuation-based pensions will affect entitlements to Centrelink benefits that are subject to an income test (such as the age pension)
The new rules will only affect those who start receiving their Centrelink benefits after 1 January 2015, or who start or change their superannuation-based pensions after that date.
If you may be eligible for both a Centrelink benefit and a superannuation-based pension next year, you may need to take action this year to maximise your Centrelink benefits in the future. It’s important that to consider your own situation before you decide what to do.

Your financial adviser can give you a personalised recommendation to help you consider whether to:

start a new superannuation-based pension now; or
make changes to an existing superannuation-based pension before the deadline; or
apply for Centrelink entitlements that you are not receiving.

These things take time, so it’s important you and act now.

Will the changes reduce the amount you receive?

From 1 January 2015 new Centrelink rules could affect your government age pension entitlements for the rest of your life. It pays to be aware that if you receive a government age pension and set up or make changes to an account-based pension after 1 January 2015, you may be worse off. Use the time before the end of this year to work out whether reviewing or setting-up an account-based pension before 1 January 2015 will help you—and put your plan in place.

What will the changes mean for you?

All account-based pensions (ABPs)—including allocated pensions—set-up after 1 January 2015 will be assessed the same way as other financial assets. So if you’re receiving a government age pension it may be reduced as a result. This also applies to those ABPs set up before this date that are not eligible to preserve the old rules.

If you’re eligible, it’s not too late to set up an ABP before 1 January 2015 under the current rules. In fact, doing so may preserve your government age pension entitlements.

Are you eligible?

If you have money in super but you haven’t set up an ABP yet, you may be able to preserve or maybe even increase your government pension entitlements if you are:

Aged over 65 at 31 December 2014
Receiving a government age pension by 1 January 2015.

What if you make changes to your existing ABP?

Any changes you make to your ABP after 1 January 2015 could make your ABP assessable under the new rules—for example, if you:

Change your ABP provider
Add or remove a reversionary beneficiary (a person you’ve nominated to receive your pension income when you die)
Combine multiple ABPs or consolidate super into your ABP
Cease receipt of a government payment Start a death benefit pension for anyone other than a reversionary beneficiary.

It’s important to speak with your financial adviser about whether setting up or reviewing your ABP now will help you preserve any age pension entitlements you may have. Now might also be a good time to review your estate plan.

Example

Let’s take a look at Jane and Michael’s situation.

If Jane and Michael, both aged 65, retired with a combined super fund balance of $273,000 and minimal other assets, they would currently be entitled to a full Government age pension under the assets test, and if they start an ABP prior to 1 January 2015, they would also be entitled to the full Government age pension under the income test (depending on level of income drawings).

If they transferred the $273,000 to an ABP after 1 January 2015, then deemed income of $8,361 pa would be counted towards their income test, which would reduce their combined age pension by about $19 per fortnight ($494 pa). At current levels of 2% and 3.5%, deeming rates are comparatively low. In the event that the deeming rate increased to, say, 6% pa, their age pension would be reduced by a total of $173 per fortnight ($4,498 pa).

If they transferred the $273,000 to an ABP before 1 January 2015, they could draw an annual income of up to $20,011 before their age pension would reduce under the income test (assuming Jane is an automatic reversionary on Michael’s ABP).

What you need to know

The example above is illustrative only and is not an estimate of the investment returns you will receive or fees and costs you will incur. This example is based on the following assumptions (a) Rates used are valid up to 30 June 2015 (includes maximum pension supplement and clean energy supplement). (b) No other income or assets have been factored into the calculation (eg lifestyle assets and/or any other investments). (c) Deeming rates are 2% up to $79,600 for a couple, and 3.5% for amounts above this figure.

What You Need to Know

Any advice contained in this newsletter is of a general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regard to those matters. If you decide to purchase or vary a financial product, your financial planner, our practice, AMP Financial Planning Pty Ltd and other companies within the AMP Group will receive fees and other benefits, which will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. You can ask us for more details.

New Centrelink rules affecting Government age pensions and other benefits