Forman Financial Services

A simple explanation of how age pension works

There are three main requirements for a person to become eligible for an age pension.

First the age pension claimer must be an Australian resident and be in Australia when lodging the claim.  The Social Security Act of 1919 defines what is an Australian resident.  Under the Act it includes Australian citizens or a holder of a permanent visa.  There are other circumstances where one may qualify as a resident and for more information you can refer to

Secondly, the age pension claimer needs to reach the qualifying age.  The current qualifying age for males and females is 65.  From 1st July 2017 the qualifying age is increasing to age 65½ and will then be raised by 6 months every 2 years until the qualifying age is 67 by 1st July 2023.  This means that the person born after 31st December 1956 will only qualify for age pension when they reach aged 67.  The following table shows the gradual increase by date of birth from 65 to 67.

Born Women eligible for age pension at age Men eligible for age pension at age
From 1 January 1949 to 30 June 1952 65 65
From 1 July 1952 to 31 December 1953 65½ 65½
From 1 January 1954 to 30 June 1955 66 66
From 1 July 1955 to 31 December 1956 66½ 66½
From 1 January 1957 67 67

The third requirement is to pass the Income and Assets Test.  The simple explanation of these tests is that the age pension claimer has to declare their income and assets.  The income is then measured against the threshold.  If the level of income is below the lower threshold a full pension can be paid under the Test.  The higher the income the lower the pension.  There is a high threshold which means that if the claimer has income above that threshold no pension will be available under that Test.

The Assets Test operates in a similar manner to the Income Test, however with different levels of thresholds.  The actual pension available will be the lower result from the two Tests.  As an example, if under the Income Test the full pension is available, while under the Assets Test only half the pension is available, the claimer will only receive the half pension.

Although under the simple explanation described above the Tests seem straightforward and simple, on a practical level they are far from it.  The reason for this is because there are specific rules of what defines assets and what defines income and how they are measured under the Tests.  In other words, one can hold investment assets which provide a high level of income however when it comes to the Income Test only a fraction of that income will be used for the Test and in a vice versa scenario one can receive a very low income however when it comes to the Income Test the valuation will be higher than the income actually received.

Another important point regarding the age pension is that by qualifying for any amount one is then entitled to a pension card which has economic value in the way of discounts from different Government bodies such as rates, fees and health matters, which are not available without the pension card.  There could be a situation where a person may qualify as a result of the Income and Assets Test for a very small pension.  The actual pension paid may be insignificant and the person may have the attitude of why bother, however the ability to qualify for the pension card (by receiving any amount of pension) will have a significant economical value.

Due to the complexity of how the Income and Assets Test works on a practical level, good advice on how to structure income and assets prior to applying can help the claimer to qualify to receive a pension.  We help people by advising them how to structure their assets and income to qualify for age pension.  One can be surprised by the ability to qualify for a pension and again one needs to remember the added economic value of the pension card.

Call us today if you or your relatives qualify under the first two requirements (residential status and age) but feel they may fail under the Income and Assets Test.

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