Introduction

One in six people will be over 65 years old by 2050. With the world's population ageing quickly, it is natural to think about how pension systems around the world will cope, particularly in Australia. Fortunately, Australia's three-component retirement income system means our age pension system is well-equipped to support older Australians now and well into the future.

Is Australia's age pension adequate for retirement?
Comparisons of age pensions around the world are generally made based on three key factors — adequacy, sustainability and integrity. The balancing act is tough, but essential for countries to get right. It is no use having an overly generous age pension if the current funding measures (typically tax revenue) aren't adequate to maintain the system long-term.

Introduction

Most social security payments in Australia, including the age pension, are subject to both an assets test and an income test. The more assets and income a pensioner has, the lower their pension, eventually reducing to zero. A pensioner’s situation is assessed under both tests and whichever test results in the lowest payment applies.

Deemed income
When it comes to investment income, the income test can be a bit confusing. That’s because it doesn’t use the actual income generated by investments. Rather, the government “deems” that financial assets earn a particular rate of return. This makes life easier for pensioners as they don’t have to track interest payments, dividends or distributions from each of their investments.

Introduction

With Australia’s age pension being subject to an assets and income test, a simple way for part-pensioners to increase their pension payments is to give away some assets.

Not surprisingly the government is on to such an obvious strategy. It’s called gifting, and while it is perfectly legal for you to give away whatever you want whenever you want, if you exceed the relevant limits, Centrelink will continue to assess, what it calls “deprived assets”, for five years.

The limits... 

Introduction

Currently 1.8 million Australian homeowners receive some level of age pension, with around 700,000 on a part pension.

What many of these part-age pensioners may not know is that, along with recipients of the disability support pension, carer payment and some other Centrelink payments, they are able to access some of the equity in their home through the Pension Loan Scheme (PLS).

What is the PLS?

Introduction

The basic rule for receiving an age or service pension is to ensure it goes to those people who need it. To determine how much each person is paid, pension recipients are subject to means testing on income and assets.

Two tests are applied and the one paying the lowest age pension is the one that is used. Many retirees pass the income test but fail the tougher assets test. This means they get a reduced pension or no pension at all.

Introduction

If it’s crossed your mind to look at ways to reduce the value of your total assets to be eligible to receive an age pension benefit, you should be very careful. There are strict rules governing what you can give away and when.

Introduction

With all of the talk about the need to be self-sufficient in retirement it’s not surprising that many people assume that the government-funded age pension will be phased out altogether sometime in the future. But will it?