How does super impact your age pension?

Whether your superannuation impacts your Age Pension depends on a number of factors, such as your age and your level of assets and income. 

Age pension age 

In order to qualify for Age Pension payments, you must have reached age pension age. Your age Pension age is determined by when you were born, as follows:

Period within which a person was bornPension ageDate pension age changes
From 1 July 1952 to 31 December 195365 years and 6 months1 July 2017
From 1 January 1954 to 30 June 195566 years1 July 2019
From 1 July 1955 to 31 December 195666 years and 6 months1 July 2021
From 1 January 1957 onwards67 years1 July 2023

The current age pension age is 66.5. If your birthdate is on or after 1 January 1957, you’ll have to wait until you turn 67. This will be the Age Pension age from 1 July 2023.

How super is assessed for the Age Pension

Most Centrelink and Department of Veterans’ Affairs (DVA) income support payments are means-tested to determine how much pension/allowance an eligible person is entitled to. 

Once you reach age pension age, your superannuation balance (including any superannuation pensions) will count under the:

– Assets Test – being the balance on your latest statement, and 

– Income Test – but only under the ‘deeming rules’.

To recap, the deeming rules are used to work out the income for your financial assets including superannuation. The rules assume these assets earn a set rate of income, irrespective of what they really earn. On 1 July 2022, the deeming rates were frozen for a further two years for all people receiving Centrelink payments, including approximately 445,000 Age Pensions. Therefore, even though interest rates have increased significantly in 2022 and may do so further, the current deeming rates are sheltered until at least the middle of 2024.

That said, the Asset and Income Tests are both applied and whichever test results in you receiving the lowest rate of Age Pension payments is the test that will apply to determine how much your Age Pension payments will be.

Note that the same Asset and Income Test rules apply to your partner and their superannuation when they reach age pension age, even if they are not getting a payment from Centrelink.

Increasing Centrelink and DVA entitlements 

There are a number of strategies that can be employed to maximise access to the Age Pension once you or your partner reach eligibility age. These strategies are summarised in the table below. 

Withdrawal and contributionIf you are age pension age and have a younger spouse who isn’t, you can maximise access to the pension by withdrawing your superannuation, gifting it to your spouse, and then having your spouse recontribute that amount to their superannuation fund. In doing so, that amount of superannuation is transformed from counting towards the Age Pension Assets Test and Income Test to not counting.
Spouse and non-concessional contributionsMaking a spouse superannuation contribution to your spouse who is under age pension age or that spouse making a non-concessional contribution to their own account with cash sitting in a bank account can also enhance access to the Age Pension.
Superannuation splitting Superannuation splitting is another way to reduce your superannuation balance and have it shift to your spouse and thereby potentially increase your access to the Age Pension.
Other Aside from superannuation, there are other strategies to increase access to the Age Pension. These include:Making improvements to your family home (the value of the family home does not count towards the Assets Test)Investing in a funeral bond or pre-paying funeral expenses (also exempt from the Assets Test)Purchasing an annuity. The benefit is that under the Assets Test, generally only 60% of the purchase price of a lifetime income stream (including a lifetime annuity) will count as an asset through to age 84, or for a minimum of five years. From that point onwards only 30% of the purchase price counts as an asset

Seek advice 

It is important to be mindful that although these strategies may enhance access to the Age Pension, contributing to superannuation or spending money you have on hand outside of superannuation reduces your savings. This in turn may create cashflow problems. As such, we recommend that clients seek advice first before acting. Please feel free to contact us if you have any questions or need any further information.

DISCLAIMER: This information is general in nature. It has been prepared without taking into account your objectives, personal or business circumstances, financial situation or needs. Because of this, you should, before acting on this information, consider in consultation with your adviser, its appropriateness, having regard to your objectives, personal or business circumstances, financial situation and needs.