EXPENSES
Any necessary major purchases,
such as a new car,
improvements in the family home
etc. can be brought forward
– leading to an increased entitlement sooner.
Strategies to Improve Retirement Income
After qualifying the financial impact of the legislative changes, you might consider strategies available to maximise the Age Pension entitlements and your total retirement income.
You have done the hard yards and accumulated retirement assets to ensure you enjoy your senior years. Navigating your way through current government asset and income test limits can put you under financial stress. Your standard of living shouldn’t decrease in retirement.
Annuity
A fixed term annuity has a linear rundown of purchase price and may help with the asset test as long as acceptable purchase terms can be obtained.
Superannuation
Since superannuation is not counted as an asset until Age Pension age, it is worthwhile (if relevant) to have as much super in the name of the younger person as possible. This can be organised with a withdrawal from the older person’s account and re-contribution to the younger individual before they reach Age Pension eligibility age subject to contribution caps.
Other Considerations
There can be a tendency to overly focus on Age Pension entitlements. However, the real main issue is the availability, level and security of retirement income. This opens up a far wider dialogue than the focus above. The purpose of this section is to detail a few items which you may like to consider and research further for incorporation into your retirement plan.
Pre 01/01/2015 Account Based Pension(ABP)
Investigate whether the grandfathered income test (i.e. based on actual drawn amount less deductibles) leads to a better outcome than the new deemed income test. For those with a partner, when the first person passed away it may or may not be possible to retain eligibility to the grandfathered assessment option.
Sustainable retirement income
Sustainable retirement income is sourced from the Age Pension, private assets and the investment earnings on those assets. The level of income drawings can be increased if the level of return can be increased. However, this also increases the volatility and risk of adverse outcomes. The sequence of returns also can’t be ignored in the drawdown phase. This is a major aspect of retirement planning in its’ own right and there are a number of techniques and strategies that can be used to manage these risks.
Part Time Work
The Age Pension rules encourage pensioners over Age Pension age (67) to engage in part-time work through the Work Bonus, which allows them to earn more income without reducing their pension. Centrelink excludes the first $300 per fortnight of eligible employment income from the pension income test. For example, a single pensioner can earn up to $512 per fortnight ($212 income-free threshold + $300 Work Bonus), and a couple can earn up to $972 per fortnight ($372 combined threshold + $600 Work Bonus) while receiving the maximum pension rate, effective 20 March 2025. Unused portions of the $300 fortnightly Work Bonus accrue in an income bank, up to a maximum of $11,800, with new pensioners receiving a $4,000 starting balance. This balance carries forward across years without a time limit and is applied automatically. Eligible income includes wages, salaries, and self-employment income involving active participation (e.g., bookkeeping, plumbing, or operating a small business) but excludes passive income like investments or rental properties.
Senior Australians and Pensions Tax Offset
Finally, the available of Senior Australians and Pensions Tax Offset together with the tax free threshold means at some stage there may be no tax disadvantage to hold retirement assets outside of the superannuation system. This can lead to administrative cost saving that can be diverted to retirement income.
Old Legacy Pension
If there are old legacy pension then these can be re-structured, subject to the value and importance of the asset test exemption into income streams that can generate more retirement income drawdowns i.e. eliminate adequacy reserves. Non account based pensions may have some favourable asset test aspects. The timing and form of any large lump sum withdrawals needs consideration. Postponing the age of retirement has a major impact on the level of income drawings that can be sustained in retirement.
As with any financial planning issues, the plan should be revisited and revised from time to time to take changes in circumstances and legislation into account.
