Seniors and other Centrelink income support clients are looking forward to a sizeable increase in their payments later in the month.
But thousands of pensioners have already received letters telling them that their expected pay rise will have been clipped or, in some cases, their pension reduced or cancelled altogether.
A lift in asset values and an automatic recalculation of entitlements is to blame, but there are steps you can take to reduce the effects.
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Pensioners will be expecting a generous increase in their rate of payment from September 20. Single pensions including age, disability support and carers payments will rise by $36.80 to $1237.7 a fortnight. For couples, it’s $27.80 each or a new combined fortnightly total of $1866.
This twice-yearly increase coincides with a recalculation of entitlements under the income and asset means tests. Whichever test produces the lowest Centrelink payment is the one the system uses.
Healthy returns in superannuation funds containing shares or direct share investments are the main culprit. But investment property revaluations are also done on a regular basis and a property you own may have been recently revalued.
Independent financial planner James Robinson said there were common misconceptions about Centrelink’s systems.
“It’s true that they have your bank account details, but they don’t routinely update the balances,” Mr Robinson said.
“Legally you need to tell them within 14 days of a $2000 change, but many people are being underpaid because they haven’t told Centrelink about the money they have spent.”
For example, an asset-tested couple receiving a part-age pension who spend $60,000 on a trip and fail to let Centrelink know is missing out on an extra $180 a fortnight in extra pension.
“Another common misunderstanding is using the replacement values on fixed assets like cars, caravans and home contents,” Mr Robinson said.
“Make sure Centrelink has the actual second-hand value if you sold these things, not the insured values.”
Centrelink will typically accept the second-hand private sale value of vehicles without add-on features and $10,000 for contents and personal effects.
Equally with real estate, make sure the values attached are accurate. With house prices now falling across Australia, real estate valuations used to calculate your payment could be higher than you might receive if the property was sold in the current market.
September 20 also sees an increase in Centrelink’s deeming rates. These are the notional rates of interest Centrelink deem your financial assets are earning, irrespective of the actual income or growth being received for the investments.
Under the system, all financial assets which include cash, bank accounts, shares, managed investments, account-based pensions, bullion, super accumulation for those aged 67 or older and gifts over $10,000 produce a grand financial asset total.
This total sum for a single is deemed to be earning 1.75 per cent on the first $66,800. For couples, the first combined $110,600 is deemed to be earning 1.75 per cent. For both singles and couples, the balance of financial assets above the thresholds will be deemed to be earning 3.75 per cent.
This calculated annual total is divided by 26 to give an equivalent fortnightly amount and tested against the $226 “income-free area” for singles and a combined $396 a fortnight for couples. Above these limits and the pension is clipped by 50¢ for each $1 over.
“In the past, the asset test often affected people before the income test bites,” Mr Robinson said.
“But the new higher deeming rates over the past year mean a single with $195,000 will now see a reduction under the income test.”
For couples, a combined financial asset total of about $335,000 will see the pension reduced under the income test.
While there’s no real way of beating the income test, make sure you’re getting at least the deemed rate on your investments.
“It’s not as hard as you think. These days, you can easily get 5 per cent or more in perfectly safe at-call bank accounts,” Mr Robinson said.
