Got $500,000 in superannuation? You still qualify for the age pension. Here's how much
Half a million bucks in superannuation may sound like a lot.
But if you're relying on that to fund 30 years of retirement, it suddenly doesn't look like a fortune, right?
Here's the good news.
In most circumstances, you'd still qualify for the age pension with this much in super.
Handy!
Let's investigate how the assets and income tests determine how much pension you would receive.
Age pension rules
Australians born on or after 1 January 1957 are eligible for the pension at 67 years of age, subject to a few rules.
The full pension for eligible Australians is $1,237.70 per fortnight for singles and $933 per partner, per fortnight, for couples.
The age pension is means-tested.
That means how much you own and earn determines both your eligibility for the pension and how much you would receive.
Hence, the assets test and income test.
Different monetary thresholds apply, depending on marital status and whether you own your home.
How much pension you receive will be determined by whichever test entitles you to the least amount.
Superannuation forms part of both tests.
Here's how.
Assets test
The assets test takes into account pretty much everything you own, with some exceptions.
The biggest one is your home.
At pension age (67 years), superannuation is assessable under both the assets and income tests.
The value of other assets, such as ASX shares, bonds, rental properties, cash savings, cars, and home contents, is also included.
So, in our example today, let's assume that in addition to $500,000 in super, you have an old car and home contents worth $30,000.
Your total for the assets test is $530,000.
Now let's look at the asset test rules.
- Single homeowners whose assets are worth less than $333,000 qualify for a full pension
- Single homeowners whose assets are worth $333,001 to $745,750 are eligible for a part-payment
- Non-homeowner singles whose assets are worth less than $600,000 qualify for the full pension
- Non-homeowner singles who have $600,001 to $1,012,750 in assets qualify for a part-pension
- Couple homeowners whose assets are worth less than $499,000 qualify for a full pension
- Couple homeowners who have $499,001 to $1,121,000 in assets qualify for a part-payment
- Non-homeowner couples whose assets are worth less than $766,000 qualify for the full payment
- Non-homeowner couples who have $766,001 to $1,388,000 in assets qualify for a part-pension.
Good news: you qualify for at least a part-pension in all scenarios.
Now let's do the income test.
Age pension income test
Centrelink doesn't care how much your superannuation actually earns in dividends or other income.
Instead, it uses deeming rates to determine an assumed investment income.
Your car and home contents are not financial assets, so they aren't subject to deeming.
That means only your $500,000 in superannuation is relevant for the age pension income test.
The lower deeming rate for the first $66,800 worth of assets for singles and $110,600 for couples is a delightfully piddly 1.75%.
Income above these amounts is deemed to have earned 3.75%.
So, on $500,000, your deemed income is $669.77 per fortnight ($17,414 annual) if single.
If you're a couple, your deemed income is $636.08 per fortnight ($16,538 annual).
Now let's look at the income test rules.
- Singles who are deemed to receive less than $226 per fortnight qualify for the full pension
- Singles who receive between $227 and $2,701.40 per fortnight qualify for a part-payment
- Couples who receive less than $396 per fortnight qualify for the full payment
- Couples who receive between $397 and $4,128 per fortnight qualify for a part-pension.
Good news again: you qualify for at least a part-pension in all scenarios.
How much pension will you get?
Single homeowners
Under the assets test, your age pension entitlement is $646.70.
Under the income test, your entitlement is $1,015.82.
Centrelink pays the lower of the two, so you'd receive $646.70.
Single non-homeowners
Under the assets test, your age pension entitlement is $1,237.70.
Under the income test, your entitlement is $1,015.82.
So, you'd receive $1,015.82.
Couple homeowners
Under the assets test, your age pension entitlement is $886.50 per partner, per fortnight, or $1,773 combined.
Under the income test, your entitlement is $872.98 per partner, per fortnight, or $1,745.96 combined.
So, you'd receive $1,745.96.
Couple non-homeowners
Under the assets test, your age pension entitlement is $933 per partner, per fortnight, or $1,866 combined.
Under the income test, your entitlement is $872.98 per partner, per fortnight, or $1,745.96 combined.
So, you'd receive $1,745.96.
The post Got $500,000 in superannuation? You still qualify for the age pension. Here's how much appeared first on The Motley Fool Australia.
Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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