Anne Fuchs: Hello and welcome to the Super Insider, Australian Retirement Trust’s podcast series on all things superannuation and retirement, so you can put your feet up at the end of your working life. My name is Anne Fuchs, and I’m the Executive General Manager of all things Advice, Guidance, and Education at our fund.
Today, I'm thrilled to bring in somebody who is an expert on the Age Pension. And the Age Pension is sexy. Believe it or not, everyone wants to know about the Age Pension.
Before I introduce our guest, I want to remind you that, of course, this is general advice and general information only. So please don't act just on this podcast. If you need more information, you can:
go to Services Australia and speak to a Financial Information Services Officer
call us at Australian Retirement Trust or,
if you're a member of another super fund, call them, or,
if you have a financial adviser, call them.
So many different options, but here we are. Justin Bott, welcome, Community Information Officer for Services Australia.
Justin Bott: Thank you so much for having me.
Anne: We are thrilled that you are here. You've come up north of the Tweed?
Justin: (laughs) I have! It was a trip this morning, but it's great to explain how the Age Pension works for your listeners and viewers.
Anne: You are a good man, sir. But before getting into the Age Pension, tell us a bit about your career and your passion for it. Where did it come from?
Justin: Well, I've been with Services Australia for more years than a lot of people have been alive.
Anne: How many decades? Come on.
Justin: I'm getting close to my third decade.
Anne: Congratulations.
Justin: I came up through the ranks. I've been a Customer Services Officer - so, the person on the other side of the counter. Then, I managed teams there. Then, the big move for me was into the Financial Information Service, which you've already mentioned. It's the free information service Services Australia provides to anybody who has questions about finances. And it was great fun. I really enjoyed doing that. You'd be talking not just about Age Pension eligibility, but where super fits in and what account-based pensions are, because a very common customer would be somebody who's about to retire, knows they have super, has no idea how they got it, and has no idea what happens next. And so, we'd be talking about that. But we also talk about Aged Care, and we talk to young people about how they're investing in the first place. And so, there's a whole investment story that we can help people understand so that they can understand the language, terminology, and roles of the financial professionals.
From there, because I enjoy opportunities like this, I moved into the Community Information Officer role, which is just a chance for me to get out into the public and give the message. This is what the payments are, this is what the eligibility is, this is what's good about things, what's bad about things, and giving that information so that people make their own decisions, but they make them based on good, solid facts. That's what we're trying to give.
Anne: I bet many of our viewers and listeners didn't know that was a service the Government provided. And how lucky are we as a country to have such a fantastic service that we're able to access at no cost? It's truly, truly amazing. What's your favourite thing about your job?
Justin: Oh, this.
Anne: Coming to the Super Insider podcast!
Justin: (laughs) The opportunity to get out to the public and answer questions and have that enlightenment where people see the cloud of them not knowing what is going on…
Anne: The lights come on.
Justin: Yes, the lights come on, helping them understand. With a couple of quick pieces of information, there is guidance where there was a wall, and we really didn't know where to go.
So, it's all about that, all about helping people in however we can.
Anne: Justin, you and I get out of bed to go to work for the same reason. Helping people make good choices gives them that sense of empowerment and control when they're probably feeling they're showing up at Services Australia, maybe feeling lost or scared, and they walk out feeling very different.
Justin: We certainly have a lot of people who have an idea about Age Pension. But that is absolutely the Aged Care story. ‘Mum or Dad needs to go into Aged Care, and they're talking about big amounts of money, and I don’t know how I'm going to do that’. It's all very confusing. They come out, after seeing either our Aged Care specialist officers or the financial information service, and it's all clear. There is a path. This is all possible. It’s something that we can do. And seeing that transformation is just a joy.
Anne: Speaking of joy, the Age Pension is joy. It's joyous because what I love about the Age Pension, I think it was introduced in the 1920s…
Justin: It's been around for a very long time.
Anne: A very long time. It's one of the great policy achievements so ordinary Australians could retire with dignity. That safety net is so that people can put food on the table. A marvellous achievement.
Justin: Yes, that guarantees that if I meet the residency requirements for pension with my income and assets under the limits, which means that I don't necessarily have much, I will have a source of income, and I'll have that source of income until the day I die. Regardless of whether I did or didn't pay any tax. That's not part of the picture. It's what are your circumstances right now. Are you of the right age? Where are your income and assets? Are you a resident? Can we pay the pension to you?
Anne: I'm a Sound of Music junkie. I got married in Salzburg. My kids of all got Sound of Music-type names. So, as Maria von Trapp said, let's start at the very beginning. It's a very good place to start. Age Pension. Let's just assume that someone has come down from Mars. What is it and how are you eligible?
Justin: The Age Pension is a fortnightly payment made to people who meet certain eligibility criteria. The first one is how old you are because it's an Age Pension. So right now, that's 67 years of age. It was 60 for women and 65 for men, but it's now been moved up to 67 for both men and women. So, you've got to be 67 years of age or over. You must be an Australian resident with at least 10 years of residency in the country. Five of those have to be in a continuous period. It could be in and out for the rest. But at least 5 years continuous, 10 years total. In order for a pension to be payable into your bank account, you have to have your income and assets, which are how much you're earning and how much you own, under the limits.
Anne: What does that mean 'under the limits'?
Justin: There's an amount of money that you can have where you get the full rate of Age Pension. We call those the income and asset-free areas.
Anne: That's the full Age Pension, the full entitlement.
Justin: Yes. But then, once you go over those income and asset-free areas, the more you earn, or own, the less pension you get. So, it's a sliding scale. Eventually, you get to the point where your income or assets are too high, and the pension can't be paid.
Anne: That's a good problem to have, just quietly.
Justin: Yes, that's right. If I can't get a pension, that means that I earn quite a lot, or I own quite a lot. Now, there are some important things to say about that one. The first one is that the family home, in most cases, is not counted in those limits. If you own the home you live in, we're looking at how much you can have in the way of assets…
Anne: That's excluded.
Justin: That's excluded, so we're not going to be counting those. And the other one is that you must pass both the income and assets tests to be paid. So, if your income is below the limit but you have too many assets, we can't pay a pension. And the other way around. If I own very little but still earn quite a decent income, I can't be paid a pension, again, because my income is too high. For me to receive a pension payment, my income and assets must be under those cut-off points. Regardless of how much pension I get, I also get the pension concession card, which gives me eligibility for other concessions.
Anne: Okay, let's just explain what the typical assets are. People may need clarification whether a car is an asset. Is my boat in the driveway? Does Centrelink consider that an asset?
Justin: The answer is yes and yes. When we're talking about assets, we're talking about basically anything that you might own, and that's almost everything.
Anne: What about my dog?
Justin: (laughs) In most cases, probably not. It's easier to list the assets we don't count than to list the assets we do.
Anne: Okay, alright.
Justin: The biggest asset we don't count is the family home, so that won't be counted in the assets test. The other big one is superannuation when you're under the pension age. If you or your partner are under Age Pension age, which again is 67, and your super is still in accumulation, so you're still contributing to it. It's still growing. And, importantly, it's being taxed at 15%. Then that won't count towards any payment eligibility. We only count it once you turn Age Pension age.
But suppose you're 67 and above, whether you've done anything with your super or not. In that case, it will count as an asset for Services Australia. So, superannuation is a big one. Also, things like fully pre-paid funerals, or if you buy a funeral bond, are not counted as an asset from a Services Australia perspective.
But pretty much everything else is going to count. So, your bank accounts, your share fund, your superannuation, your account-based pensions, your investment properties, your holiday home that's not generating an income but is still an asset—all of those things are going to count. The biggest hole people fall into when it comes to assets is that they know the value of their holiday home, the balance of their fund and bank accounts. Where they may overestimate typically are things like the household contents and personal effects, or the car.
Anne: And what's the consequence of that?
Justin: Well, the more assets you have, the less pension you get. The way the pension works is if your assets are over that asset-free area, for every $1,000 of assets you have over those limits, you miss out on $3 a fortnight of pension. So, if I have over $10,000 worth of assets, I'm missing out on $30 a fortnight of pension. If I'm overestimating the value of my household contents and personal effects. If I'm using things like insurance value.
Anne: Yes, because people would probably do that, wouldn't they, if they want to insure what's inside their house if it burns down?
Justin: Yes, and they know that they've insured it for $60,000, so therefore they've put it down as $60,000.
Anne: Yes, of course.
Justin: Well, that was realistically way too high. Because what we're looking for is what would you get in the market today?
Anne: If you put it all on Gumtree.
Justin: Yes, ‘life on the lawn’ is the way I describe it.
Anne: I've just had curbside collection.
Justin: That's right. And this stuff, nobody's buying. I mean, you're lucky if somebody picks it up. So, when your entire CD collection is going for 20 cents a CD, and that 1974 mission-brown couch is only worth $20, if you're lucky. That's the value we're looking at for your household contents and personal effects. And so, it's not going to be very much.
Anne: But what happens if I inherit some property or some money from a family member? Does that count as a new asset?
Justin: New asset? Yes, it will count. Realistically, it depends on how much and what you're going to do with it. But yes, a new asset is going to have an impact on your eligibility. We will only count it from the time you received it. So, it has been distributed to you as a beneficiary. But from that moment, you've got 14 days to tell us you've received it. And that asset will then be added to the rest of your assets and potentially affect your eligibility for pension.
Anne: What if I have lots of super fund accounts? What if I'm an older Australian where stapling hadn't happened yet, and you haven't consolidated? What do you do then? Does it all just add up?
Justin: The nice thing about super and account-based pensions nowadays is that they are all treated the same. So, from a Services Australia perspective, apart from the added burden of getting the paperwork for 7 different super funds instead of one super fund, if the balance is the same, whether it was $100,000 in one fund or $100,000 divided over 7, it is still a $100,000 financial asset. This means it's a deemed financial asset, and we will treat that the same as we would as $100,000 in an account-based pension, $100,000 in a share portfolio, or $100,000 in a bank account. So, apart from the extra reporting needed because of the multiple funds, the effect on your pension itself will not make any difference in how many you have. Or even if you moved it into an income stream, or account-based pension, or kept it in superannuation.
Anne: Justin, in the financial services world, there is a lot of jargon. Do you mind explaining what the word ‘deeming’ means?
Justin: Sure. So deeming is the way that Services Australia assesses income from what we call financial assets. So, what's a financial asset? When we're talking about financial assets, we're talking about your bank accounts, shares, managed investments, super when you're over Age Pension age, most account-based pensions, loans you may have made to other people, excess gifts over the $10,000 gifting limits. They're all what we call ‘deemed financial assets’. And deeming means that we treat them all the same. We don't ask you what your drawdown rate from your account-based pension is. We don't care if you're taking 5% or 7%. We don't ask you what the dividends from your share portfolio are, or the interest from term deposits.
We have an interest rate that we decide, or declare, or deem, that you will receive from those investments regardless of the actual income you're getting from those investments. Now that deeming rate is fixed. There's a lower threshold amount and an upper threshold amount. The lower threshold amount is 0.25%, and the maximum income from deemed financial assets at the moment is 2.25%. That was fixed by the Government on 1 July 2024. And that rate, it's now been fixed again to stay until 30 June 2025. So, it's going to stay at 0.25% and 2.25% until the end of this financial year. And that means that regardless of your level of drawdown, regardless of the dividends, we're going to say that you're earning an income of a maximum of 2.25%.
Anne: And then that helps calculate what you're entitled to in terms of your Age Pension?
Justin: Yes, so it's a fixed income source. So, if I put all those things together and applied the 0.25% and the 2.25%, that is the source of assessable income. And it’s worth pointing out, though, that people often worry about the deeming rates. Many customers are actually unaffected by deeming at all. It's irrelevant for them. Because they're getting the full rate of Age Pension, they need to be income tested in the first place. Or the pension that they're getting is because of the assets that they own. So, the income doesn't have any impact. So, whether you are or aren't receiving the deeming rate and its effect on your pension…
Anne: Don't lose sleep over it.
Justin: It only affects those who are income tested. And so, most people don't worry about it. It's not actually doing anything to your rate.
Anne: So now, superannuation and the interplay in the relationship between superannuation and the Age Pension are like bangers and mash. It's a lovely combination. Where do we start with that?
Justin: So, when you lodge an application for the Age Pension, we will want to know where your superannuation is. Because you're over the pension age, whether you've done anything with it or not, it's going to be counted as a deemed financial asset.
Then, suppose you choose to do something and move it into an account-based pension for all the tax and other benefits that an account-based pension provides. From our perspective, we treat it as if it were in the super funds. It won't make any difference to your rate of payment. So even if one was sitting there not paying anything into your bank account, and the other one starts drawing down at 5%. You're now getting this income; your pension rate is going to be the same.
The difference is going to come down the track because, with an account-based pension, you've got that required drawdown. And the required drawdown gets bigger and bigger as you get older and older, which means the likelihood that you're going to have to start eating into the capital is going to be more and more and more. As the capital starts getting eaten into, because you're spending it, and enjoying it, your assets are going to start gradually going down. Therefore, your pension eligibility is going to start going up. Now, if you're already on a pension, twice a year we will update the balance of your account-based pension to consider that. So, it's an automatic process for most funds. Self-managed super funds are a different story, but for most of the rest of the funds, it's an automatic process.
And so, you might notice around February or August that there's a change in your pension rate as your account-based pension balance changes. But apart from that, that's how it works. The fact that you are now drawing down an income from it rather than having it sitting in super in accumulation will make no practical difference to the rate of pension.
Anne: It's a good thing. It means you're living and enjoying your life.
Justin: Yes, that's where super is designed to go. You could do all sorts of other things, but that's where super is meant to go.
Anne: So, before we wrap it up, what are some of the other cool things that Services Australia provides in terms of support, particularly for retirees?
Justin: So, the big one is if you're not eligible for a pension, there's a thing called the Commonwealth Seniors Health Card. So, the Commonwealth Seniors Health Card is a health concession card. It's not assets tested, which is an important part. It has an income test, a combination of adjusted taxable income plus deemed interest from your account-based pensions. Now, that is something that people who are over Age Pension age and meet the residency requirements can apply for. Now, with all of these, with the limits in everything, there's an awful lot of information that we have yet to be able to give because there's a lot of numbers.
I recommend that anyone who wants to know about this sort of stuff go to our website, servicesaustralia.gov.au. On the front page, you'll find a whole lot of panels. One of them says Ageing. There's also one for Health and disability and one for Raising kids. Click on the one that says Ageing. It's got a lot of information and support for people in that life stage. But also goes through the limits, the income cut-off points, and the asset cut-off points. It goes through the limits and talks about the Commonwealth Seniors Health Card and the income cut-off points for that one. That's the best place I recommend to anyone who needs to go if they want to find out today what the new cut-off point for the pension and Commonwealth Seniors Health Card might be.
Anne: We've done a pretty good job covering a massive subject and distilling it down. So, this is kind of like the 101 of Age Pension. Justin, your passion for what is one of the great policy achievements, that safety net to protect us all in our older years, has been a joy to talk to you about. So, thank you so much for making the effort to come along.
Justin: It has been an absolute pleasure; thank you so much for having me.
Anne: So, to our listeners and viewers, please, if this is something of interest, tell your family and friends, and give us a top-shelf rating on Spotify or wherever you download your podcasts. We'll look forward to you joining us again soon.
This transcript has been edited for length and clarity.
