Since the time of Paul Keating, our governments have been focused on three foundational pillars for retirement savings in Australia. These pillars are:
- Compulsory Superannuation,
- Voluntary Superannuation, and where super is not enough,
- The Age Pension.
The Age Pension has been around since the first decade of the 1900s and has (for the most part, since its implementation) kicked in from age 65 for a male and age 60 for a female. The age for a female to access the pension increased to age 65 quite some time ago, and more recently, the government started moving the age to access the aged pension from 65 to 67 for everyone.
The pension age will be gradually increased from 65 to 67 years as set out in the table below.
Period within which a person was born Pension age Date of change
From 1 July 1952 to 31 December 1953 65 years and 6 months 1 July 2017
From 1 January 1954 to 30 June 1955 66 years 1 July 2019
From 1 July 1955 to 31 December 1956 66 years and 6 months 1 July 2021
From 1 January 1957 onwards 67 years 1 July 2023
From July 2021 therefore, you will need to be 66 and a half years old to be eligible to access the Age Pension. In two years, that age will increase to 67.
The Age Pension is designed as a backup for those who do not have the resources to fund their own retirement. The way that the government assesses whether or not you are in need of the age pension is through the Income Test and the Assets Test.
The Income Test looks at how much income you earn, and if it is too much then your eligibility for accessing the Age Pension is reduced. As you earn more, it reduces to the point where you have no pension entitlement at all.
As an example, a married couple of Age Pension age who own their own home can earn up to $320 per fortnight and still receive the full Age Pension. If they were to earn over that $320 however, their combined pension would reduce by 50 cents for each dollar earned over the $320, as per the standard rules.
If you were single, you could earn up to $180 per fortnight without ramifications to your Age Pension, but for every dollar earned over that amount, incur a reduction of 50 cents per dollar.
The Assets Test looks at how much you are in possession of in certain assets. If that amount is over a certain threshold, it starts to reduce your access to the pension until the amount is zero. Using the same example as previously mentioned, a couple who own their own home can have up to $405,000 in assets before it starts to reduce their Age Pension.
When applying both the income and the assets tests, you use the result that gives you the lowest pension. This is why it is important to always plan ahead if you think you will need to be accessing the Age Pension, which is where we can come in to help. If you have any questions, give us a call on 043 236 690 or book a free 15 minutes consultation here.