Account-based pension investors receiving a part-pension from Centrelink can expect to receive a letter in the next few weeks advising them of changed pension payments.
Depending on your circumstances, your benefit may go up or down, but knowing what to look for and an understanding of Centrelink’s systems can ensure you’re getting what you deserve.
In some cases, the new rate of payment may be less than you’re entitled to.
Financial planner James Robinson said that all major funds appear to have been contacted.
“Fund managers are sending through batches of updated account information to Services Australia, the department that oversees Centrelink, Medicare and other government departments that pay out money to individuals,” Mr Robinson said.
The updated information includes current ABP balances, payment rates and any lump-sum payments paid as commutations that may have been made.
This routinely occurs twice a year, with each major fund manager offering ABPs submitting the data electronically. Self-managed superannuation fund trustees normally receive a letter requesting the same information about the same time.
The semi-automated process removes the requirement for those in the automated system to provide the information. But that doesn’t prevent you updating the data manually, particularly if there’s a benefit in doing so.
Once received, the data is matched to individual Centrelink customers and the customer’s eligibility is recalculated under the income and asset test to determine the new rate of payment.
“The issue is that in most cases the relevant data changes daily, and with the current level of market volatility there’s a good chance a manual update will result in a greater fortnightly Centrelink payment,” Mr Robinson said.
For example, an ABP with a reasonable exposure to Australian shares that provided data based on August 1 values reflected the ASX200 index at 7663 points. Currently, the market is down more than 3 per cent from that level.
“A $400,000-balanced ABP fund might see a decline in value of around $10,000 which immediately translates to $30-a-fortnight increase for an asset-tested part-pensioner. Over a year, that’s an extra $780,” Mr Robinson said.
The asset test sees a $3 reduction in the fortnightly pension for each $1000 over the relevant asset test thresholds. These thresholds vary depending on your family situation and whether or not you are a homeowner.
The effects for an income-tested pensioner are much less because of the historically low deeming rates which are frozen until July 1 next year. Under that system, each $1 over the income test thresholds results in a 50¢-a-fortnight reduction.
Under deeming, assets including bank accounts, shares, superannuation, ABPs, cash and other financial assets are deemed to be earning a notional rate of interest. For singles, the first $60,400 is deemed to be earning just 0.25 per cent a year. For couples, this combined threshold is $100,200. All financial asset above these thresholds are deemed to be earning 2.25 per cent.
The grand total is then divided by 26 to give a fortnightly amount which is tested against the income-free area of $204 for singles or a combined $360 a fortnight for couples.
Whichever means test produces the lowest pension payable is the test Centrelink will latch onto.
There are special considerations for those who have a “grandfathered” ABP that was commenced prior to January 2015 and received an uninterrupted Centrelink income support payment at that time and through until now. In that case, while the asset test has the same effect as now, the deeming system doesn’t apply.
Instead, a complicated calculation determines what portion of the regular payment from the ABP is assessed by Centrelink. This calculation system can work against you if you have been dipping into your account balance with one-off commutation lump-sum payments over the years.
It could mean that you’re affected by the income test and needn’t be. Simply assuming a grandfathered ABP leaves you in a better position is incorrect.