FACTFILE - Centrelink payments calculations

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1 FACTFILE - Centrelink payments calculations All Centrelink income payments are calculated utilising both components of the means test the assets and income test. After both tests have been applied, you will receive the lower entitlement amount. Income test For a pensioner couple, the income test-free area is $256 per fortnight combined. The amount of combined pension you will receive as a couple reduces by 50 cents for every dollar of income above $256 you will receive per fortnight. Although if you are a single pensioner, the amount of income you can receive (including deemed income) before your pension is reduced is $146 per fortnight. This is called the income test free area. The amount of pension you receive reduces by 50 cents for every dollar of income above $146 you receive per fortnight. Assets test Although the market worth of all the assets that you possess are included in the assets test, there are some exceptions, which include: Your current home; Complying income streams (explained below); If you are under age pension age, your superannuation in the accumulation phase; Selected non-purchased defined benefit pensions such as Comsuper and some State Government or company super pensions; Accommodation bonds for aged care; Funeral bonds to the value of $11,000; Pre-paid funerals and burial plots; and Gifts which are under $10,000 (explained below). If your assets exceed the minimum threshold as shown in the table below and you are claiming an allowance such as Newstart, you will not receive income support. Minimum threshold ($) Homeowner: assessable assets ($) Non-homeowner: assessable assets ($) Single person $181,750 $313,250 Couple $258,000 $389,500 If you re a pensioner and the total value of all your assets exceeds the minimum threshold, the amount of pension you receive will be reduced by $1.50 per fortnight for every $1,000 your assets exceed the minimum threshold. This is known as the assets test taper. Page 1 of 7

2 Maximum threshold ($) Homeowner: assessable assets ($) Non-homeowner: assessable assets ($) Single person $659,250 $790,750 Couple $978,000 $1,109,500 Case study Simon and Alice (homeowners) Assets Cash and personal effects of $25,000, Allocation pension of $575,000 Simon and Alice are drawing $36,000 income from the allocated pension. As Simon and Alice s joint assets fall within the maximum threshold, they qualify for around $ pension per fortnight. This calculates as follows: Assessable assets $600,000 Minimum threshold ($258,000) Excess assets $342,000 Pension 1.50 per $1,000 of $ excess assets Full combined pension $ Reduction ($513.00) Combined pensions $458.20* * (which excludes pension supplement which may be received as an additional payment to the base Deeming Deeming is used by the Department of Veteran s Affairs (DVA) and Centrelink as an element of the income test. Regardless of the actual rate of return or capital growth you earn, deeming assumes you earn a certain return on your investments. If your investments produce less than the deemed rate, they will still be assessed at the deemed rate. Although if your investments produce more than the deemed rate, the difference will not be included in the income test and will not effect your Centrelink Investments that are subject to deeming include: Debentures and bonds; Cash and cash management trusts; Listed shares; Super and rollover funds; Term deposits; Bank, building society and credit union cheque and savings accounts; Income streams (for example, annuity streams) that have a term of less than five years; Managed investments. Page 2 of 7

3 Current deeming rates Initial Assessed at Remainder Assessed at Single person $43, % 4.5% Couple $72, % 4.5% Case study James is single with $35,000 in managed funds and $145,000 in a bank savings account. The $35,000 managed funds plus $8,320 of the bank savings will be deemed to have earned 3.0%. The balance of James bank savings ($136,800) will be deemed to have earned at 4.5%. Centrelink calculate James fortnightly income by multiplying his annual income by the deeming rate and then dividing by 26 (the number of fortnights in a year): Managed funds deemed income ($35,000 x 3%/26): Bank savings account deemed income ($8,320 x 3%/26): Bank savings account deemed income ($136,800 x 4.5%/26): Total per income test: $40.38 $9.60 $ $ per fortnight The pension James would receive under the income test would be calculated as the maximum pension ($644.20) less the income test reduction. The reduction amount is the fortnightly income above the income-free threshold, reduced at the rate of 50c in every dollar or $ $146 x 0.50 = $70.37 James fortnightly pension amount would be $ $70.37 = $573.83* * which excludes pension supplement which may be received as an additional payment to the base Gifting Gifting is the process by which you give away a portion of your assets; this will enable you to increase the amount of Centrelink benefits you receive. It is essential to be aware that gifting is capped at $10,000 per financial year, and a maximum of $30,000 over a five-year period. Note: Anything above that limit is included in the assets test and subject to deeming. Page 3 of 7

4 Case study Georgia is 67 and a homeowner with the following assets: House (non assessable) $220,000 Car $10,000 Bank account $10,000 Term deposit $25,000 Shares $15,000 Cash $140,000 Assessable assets totalling $200,000 Pre-gifting Georgia s age pension entitlement under the assets test is calculated as follows: $200,000 $181,750 = $18,250 18,250/1,000 = x $1.50 reduction = $27.38 Maximum pension ($644.20) reduction ($27.38) = $616.82* pension entitlement per fortnight * Which excludes pension supplement which may be received as an additional payment to the base Post-gifting Georgia s assessable assets after gifting $10,000 before 30 June 2010 and $10,000 in July 2010 to her daughter now total $180,000. Her pension is calculated as follows: $180,000 $181,750 = Nil Maximum pension $644.20* per fortnight * Which excludes pension supplement which may be received as an additional payment to the base Funeral bonds Funeral bonds are not counted as income or assets under Centrelink s means test and therefore you can invest up to $11,000. The funeral bond limit increased to $11,000 from 1 July Page 4 of 7

5 Case study Adam, aged 66, is a home owner. The value of Adam s assets that will be assessed under the assets test are: Caravan $10,000 Car $10,000 Allocated pension $150,000 Bank account $70,000 Total assets of $240,000 Under the income tests, Adam can claim $ for his social security entitlement. His income is the deemed amount on the bank account and a small amount of the annual payment of his allocated pension which just exceeds his deductible amount. However, Adam s pension entitlement is reduced under the assets test. Under the current scenario he is entitled to $556.83* per fortnight age pension. Adam decides to purchase a $11,000 funeral bond which is not assessed under the assets test. By doing this, his social security entitlements increase to $573.33* per fortnight. * which excludes pension supplement which may be received as an additional payment to the base Superannuation Any funds that you have in the accumulation phase of your superannuation (phase where you are not receiving a pension) will not be included in the assets and income tests, if you are under the age pension age. Although the money you have in superannuation in the accumulation phase, is assessable if you are above age pension age. You should also be aware that any funds that you hold in a pension will be considered by Centrelink, whether or not you are above or below age pension age. Yet, certain complying income streams may be eligible for a 50% or 100% exemption from the assets test. Waiting periods relevant to Centrelink payments Liquid Assets The time you must wait before being paid by Centrelink if you have access to any liquid assets above the threshold amount is the Liquid Assets Waiting Period (LAWP). The existing thresholds amounts are: Couples and/or single people with dependants $11,000 Single people with no dependants $5,500 Liquid assets are defined as any readily available funds; these include your partners, and have to be assessable within 28 days of the date you last worked. They include: Page 5 of 7

6 Term deposits; Debentures and shares; Cash; Any other funds that can be available to you at short notice; Payments due or made to you or your spouse from your last paid employment; Amounts lent or deposited to all financial institutions, whether or not the amount can be withdrawn or repaid immediately; and Insurance bonds (10 years). Termination payments and your superannuation which have been or will be rolled over directly from your employer are not considered liquid assets. The LAWP applies from the date your employment ceased. The LAWP is calculated over a number of weeks, which follows: 1.Firstly calculate how much your liquid assets exceed the threshold amount by. 2. To calculate the waiting period, divide the excess liquid assets amount: If you re a single person with no dependants by $500 If you re married or single with dependants by $1, The result is the LAWP (maximum 13 weeks), round the answer to the nearest whole number. Income Maintenance Period The period you may wait before receiving a Centrelink payment if you have accepted leave or redundancy entitlements from an employer is known as The Income Maintenance Period (IMP). Under these requirements, the payments you receive are treated as assessable income for the period related to the leave For instance, two weeks annual leave would result in a two week IMP starting from the day you receive the Payments included in calculating the IMP are unused: RDOs; Long service/annual leave; Sick leave; Maternity/paternity leave; and Also redundancy payments/payouts. The IMP involves all working age income support payments except Carers Payment/Leave. Centrelink Compensation Preclusion Period When you receive (or are about to receive) a lump sum compensation for a work-related incident or other accident, there may be a preclusion period where you will not qualify for a DVA or Centrelink income support Page 6 of 7

7 This period will usually date from the time of the accident/incident or the date you stop getting any regular compensation benefits. Keep in mind you may have to repay any Centrelink/ DVA for any payments made after that date. A preclusion period will apply even if you ve used all the funds and have no financial means of support. It is essential you are aware of the terms of any preclusion period before using compensation funds to purchase an asset (such as a car). Once the settlement of a claim has happened or is in the process of happening you are able to request an Estimate of Charge/Preclusion from Centrelink which will outline the likely preclusion period and will also include an approximation of the amounts repayable to Centrelink. General Advice Warning In preparing any advice in this site Andrew Corke Financial Services Pty Ltd ABN trading as Corke Wealth Management has not taken into account any particular person s objectives, financial situation or needs. Investors should, before acting on this information, consider the appropriateness of this information with regard to their personal objectives, financial situation or needs. We recommend investors obtain financial advice specific to their situation before making any financial investment or insurance decision. Page 7 of 7