Introduction
Knowing how your super affects your Age Pension can help you get the most out of your retirement planning.
There are plenty of rules and complexities to remember with superannuation and Age Pension in their own right, but a commonly asked question is “how does my super affect the Age Pension?”. Like most areas that concern the Age Pension, superannuation’s effect is determined by a number of different factors depending on your situation such as your age, whether you have a partner, your partner’s age and what you’ve chosen to do with your superannuation. While it’s nothing to make light of, hopefully, we can help bring you out of the dark on how your super could affect your Age Pension.
What is my retirement age?
In Australia, there is really no such thing as a set ‘retirement age’. In fact, your retirement age is simply the age that you personally decide to retire! However, many people ask this question because they want to know when they can either start accessing their superannuation or start receiving the Age Pension. It might come as a surprise to learn that the age you can access your super — your preservation age — is completely separate from your Pension age.
What is my Age Pension age?
Previously, the Pension age — that is, the age in which you become eligible for the Age Pension — was 65 years old. However, the Government steadily increased the pension age from 65 to 67. You can find your own Pension Age by applying your date of birth to the below table*.
| Date of birth | Age Pension age | Date that Age Pension age changes |
|---|---|---|
| Born between 1 January 1954 and 30 June 1955 | 66 years | 1 July 2019 |
| Born between 1 July 1955 and 31 December 1956 | 66 years and 6 months | 1 July 2021 |
| Born from 1 January 1957 onwards | 67 years | 1 July 2023 |
What is my preservation age?
Your preservation age states when you can start accessing your super to some capacity. This is different from your Pension age. You can find your preservation age below:
| Date of birth | Preservation age |
|---|---|
| Before 1 July 1960 | 55 |
| 1 July 1960 – 30 June 1961 | 56 |
| 1 July 1961 – 30 June 1962 | 57 |
| 1 July 1962 – 30 June 1963 | 58 |
| 1 July 1963 – 30 June 1964 | 59 |
| From 1 July 1964 | 60 |
What happens to my super once I reach preservation age?
Depending on your work situation, how your superannuation is set up and if you’ve met a condition of release, you may be able to access some or all of your superannuation. You can either keep it in the accumulation phase, convert it all to an income stream, or have a combination of both.
How does each ‘phase’ of superannuation affect Age Pension?
Accumulation phase
The accumulation phase of super is how super sits before you start drawing a pension from it. If you’ve hit Pension age, the balance of your last super statement will be counted to your assets test and the balance will also be deemed under the deeming rules.
Even if your partner is not receiving a government payment, the same rules will apply to their super.
Pension phase
When you purchase an income stream with superannuation money, it is generally considered an Account-Based Pension. If you set up your account-based pension after 1 January 2015, then it will be means-tested (with the income test and assets test) for the Age Pension. Similar to the accumulation phase, your account-based pension balance is assessed under the deeming rules from your latest statement. There are, however, a number of different rules around income streams and the Age Pension, so it pays to know how your particular setup will be assessed.
What are the different ways income streams affect Age Pension?
Under means testing, income streams are categorised into:
- exempt and partly exempt from the assets test
- asset tested lifetime
- asset tested long term
- asset tested short term.
Defined Benefit income streams are not counted in the assets test. Under the income test, Services Australia assesses the gross payment less the deductible amount (this amount is calculated by the superannuation fund and will be provided to you by them).
Non-defined benefit income streams purchased before 20 September 2004 aren’t counted in the assets test. Those purchased between 20 September 2004 and 20 September 2007, half the value counts in the assets test. For the income test, Services Australia assesses the gross payment less the deduction amount. (The deduction amount is the return of your own capital).
Because every type of income stream has a different set of rules with how they’re treated for Age Pension, it is best to speak to a Financial Information Service Officer by calling the Centrelink Older Australians Line.
I’ve taken a lump sum payment, how is that treated?
If you’ve taken a lump sum withdrawal, Services Australia will look to see what you’ve done with the money, and most likely means test it from there. If you take the money and place it in a bank account or other investment, the balance will have the deeming rate applied and will count towards the asset test. If you set up an income stream product, then it will be means tested in the ways described above.
Sometimes people like to help their children, grandchildren or other family members once they have access to their superannuation money – and may withdraw a lump sum to do so. It’s important to understand that this may fall under Services Australia’s treatment of what they call ‘gifting’. Ultimately, if you go over the allowable limit, the amount of money you withdraw from your super to give to a loved one could still be counted in your assets or income test for the next five years.
If you are considering gifting an amount of money, there is an allowable disposal amount that you can give away without impacting your pension rate. The allowable disposal amount stays the same, whether you’re single or a couple. You are able to gift $10,000 in any financial year, or $30,000 over five financial years — but you can’t give away more than $10,000 in any single year.
Summary
Typically, your retirement is funded out of superannuation, savings, or the Age Pension. A lot of the time, a combination of all three is used. For that reason, it is important to understand how your superannuation, or your partners, could affect the amount of Age Pension you receive, to ensure that you’re able to make the best decision to maintain your lifestyle now and through retirement.
The information in this article is general in nature.