Introduction
If you are one of the nearly 200,000 thousand Australians who live in retirement villages (or you’re thinking of moving into one), then it’s important to understand all the potential Age Pension implications. Read on to find out all about how the Age Pension is calculated for those who live in retirement villages in Australia, including answers to common questions and a case study.
What are the rules?
Any person must meet all of the eligibility requirements in order to receive either a full or part Age Pension in Australia. This includes an assets test. The value of the assets you own can affect your Age Pension rate.
There are threshold value limits in the assets test. If the value of your assets exceeds the minimum threshold, then your Age Pension rate will progressively reduce until it cuts out completely at the maximum threshold limit.
It’s important to note that the value of a person’s residential home is not included in the assets test. However, homeowners and non-homeowners have different threshold limits for the value of the other assets that they can own before their pension rate is affected.
When you move into a retirement village, you may (or may not) be considered as a homeowner for the purposes of the assets test. Services Australia will assess the entry fee you pay to enter the retirement village to determine whether you are a homeowner or not. Any ongoing fees and charges of your retirement village will not be assessed by Services Australia in determining whether or not you are a homeowner, only the entry fee.
The higher the entry fee (i.e. the closer it is to the market value of your accommodation), the more likely it is that you will be regarded as a homeowner for the purposes of the assets test. Homeowners have a lower assets test threshold limit than non-homeowners, so your Age Pension rate may (or may not) be affected.
However, if you are regarded as a homeowner, then you may still be eligible for Rent Assistance to help you with your ongoing retirement village fees.
Common questions
This depends on Services Australia’s assessment of the entry fee the person paid at the time of entering the retirement village. They may or may not be considered to be a homeowner.
If the person is assessed as being a homeowner, they will have a lower asset limit threshold for the value of all of the other assets that they own.
If the person is not assessed as being a homeowner, they will have a higher asset limit threshold for the value of all of the other assets that they own.
No, the value of your residential home does not affect your Age Pension entitlement because it is not included in the assets test.
Again, this depends on Services Australia’s assessment of the entry fee each person pays. The closer the entry free is to market value, the more likely it is that a person would be assessed as a homeowner.
Case study
I have a long lease unit in a retirement village. I have now been there approximately 8 years and each year my investment reduces in value. The original price that I paid was $259,000 and I have roughly worked out if I was to move I would only receive approx. $159,000. Would I now be classed as a non-homeowner and if so, would my pension be adjusted for this?
The current value of your long lease unit in your retirement village does not affect your pension rate entitlement because it is your residential home. It only affects your assets test threshold limit for the value of other assets that you own.
If you were assessed as being a homeowner on your $259,000 initial entry fee for the unit in the retirement village, then you would have a lower threshold limit for the value of your other assets before your Age Pension is affected.
If Services Australia did not class you as a homeowner based on your $259,000 entry fee when you first moved into your retirement village unit, then you would already have the higher threshold limit for the value of your other assets before your Age Pension is affected.
Summary
The value of your retirement village home is not included in your Aged Pension assets test because it is your residential home. However, the entry fee that you pay to enter a retirement village determines whether or not you are classed as a homeowner by Services Australia. Homeowners and non-homeowners have different assets test threshold limits for the value of other assets that they own. Once these limits are exceeded, Age Pension rates are affected.
The information in this article is general in nature.