July 2023 Changes to Centrelink Means Test Thresholds - How you're impacted June 8th, 2023

These changes aren't just for Age Pensioners. Disability Support Pensions, Carers Payments and even those with a Department of Veterans Affairs war service pension, are affected too.

Typically, Centrelink has two tests: an income test and an asset test. They latch onto whichever test gives you the lowest rate. When you go over the upper limits, whichever the test, you miss out on the benefit altogether. So let's get into the changes and see how different people are impacted.

For starters, if you receive the full pension of $1,064 a fortnight for singles or $802 each for members of a couple, these changes will not affect you. That’s because you can never get more than the full fortnightly rate.

Income Test Changes: Single Pensioners

The income test for single pensioners has undergone changes that can affect your pension eligibility. The new income free area for a single pensioner rises by $14 a fortnight from $190 to $204.

Here's how you can assess the impact on your situation:

1. Calculate Your Fortnightly Income, remembering that it is completely different to the way the Tax office calculates income: Determine your total income earned in a fortnight, including pre-tax wages, foreign pensions and net investment property rental receipts.
   The actual income from financial investments is completely ignored. Instead, the complicated deeming system is used. See below for more info on exactly how the deeming system works or refer to Netplan session 4.
2. Compare this figure with the Income Free Area: Check if your total fortnightly income exceeds the new income free area of $204. If your income is below this threshold, the changes will not affect your pension.
3. Evaluate Your Part-Pension Eligibility: If your income exceeds the income free area, calculate whether it falls within the maximum permissible income limit of $2,332 per fortnight. If your assessable income is within this range, you may qualify for a part-pension.
4. A part pension means that Centrelink will start to reduce your fortnightly pension by 50c per dollar above the income free area of $204.

Income Test Changes: Couples

The income test for couples receiving a pension has undergone changes. The combined income free area is now $360 a fortnight, an increase of $24 a fortnight from $336.

Here's how you can assess the impact on your situation:

1. Calculate Combined Fortnightly Income: Add up the total income earned by both partners in a fortnight, including pre-tax wages, foreign pensions and net investment property rental receipts. The actual income from financial investments is completely ignored.
   Instead, the complicated deeming system is used. See below for more info on exactly how the deeming system works or refer to Netplan session 4.
2. Check the Combined Income Free Area: Compare your combined fortnightly income with the new income free area of $360. If your total income is below this threshold, the changes will not affect your pension.
3. Assess Part-Pension Eligibility: If your combined income exceeds the income free area, calculate whether it falls within the maximum permissible income limit of $3,568 per fortnight. If your assessable income is within this range, you may qualify for a part-pension.
4. A part pension means that Centrelink will start to reduce your pension by 50c per dollar above the income free area of $360.

Note: These thresholds are higher if you are separated by illness.

Deeming Rate Thresholds: For Singles and Couples - Income Test Calculation

When calculating your income for the income test area, there have been increases to the deeming rate thresholds. This is a notional rate of interest that’s applied to all your financial assets, irrespective of what they actually earn. These rates help you work out a fortnightly amount to be used for the income test if you hold financial assets.

Financial assets include all bank accounts, shares, managed funds, superannuation assets, account based pensions, cash and bullion.

Here's how you can assess the impact on your situation:

1. Assess Your Financial Assets: Identify and list all your financial assets, such as bank accounts, shares, managed funds, superannuation assets, account-based pensions, cash, and bullion.
2. Determine Deemed Income: Apply the deeming rates to your financial assets. For singles, the lower deeming rate of 0.25% per annum now applies to the first $60,400, while the higher rate of 2.25% applies to any amount above that. For couples, the same lower rate applies to the first $100,200 combined.
3. Calculate Total Deemed Income: Add up the income deemed from your financial assets based on the applicable rates. This total is used in the income test calculation to determine your eligibility for a pension.

In effect, a single would need to have more than $289,000 in financial assets to have their pensions reduced by the income test and couples, more than $505,000.

Asset Test Changes: Single and Couple Pensioners

By far the biggest winners are those whose pension has been affected by the assets test. This test sees your pension clipped by $3 a fortnight for each thousand dollars you exceed the thresholds.

From July 1, a single home-owner can have $301,750 in assets and still receive a full pension. That’s an increase of $21,750. For couples, the combined value increases by $32,500 to $451,500.

Here's how you can assess the impact on your situation:

1. Evaluate Your Asset Value: Calculate the total value of your assets, including cash, investments, real estate (excluding the family home), superannuation, and other financial holdings.
2. Determine Eligibility for Full Pension: If you are a home-owning single pensioner, check if your asset value is below the increased threshold of $301,750. For home-owning couples, ensure your combined asset value is under the new limit of $451,500.
   If your assets fall within these limits, you may be eligible for a full pension. If you are a non home-owner, you’re allowed an additional $242,000 in assets. That figure is the same for singles and couples.
3. Consider the Upper Cut-Off Thresholds: If your assets are close to the upper cut-off thresholds of $656,500 for singles and $986,500 for couples, excluding the family home, evaluate the potential reduction in your pension payments. Again, Non home-owners enjoy an additional $242,000

Benefits for Pensioners

If you're close to the thresholds but still eligible, don't assume it's not worth applying. The minimum a single can receive is more than $1,400 per annum and couples, more than $2,200 per annum. That’s also before you include the thousands of dollars in discounts, locked up in the Pensioner Concession card.

Assessing the impact of these changes on your pension is crucial to understand your eligibility and potential adjustments. By following the actionable steps outlined above, you can make informed decisions about your financial situation and access the benefits you are entitled to as a pensioner.

If you want to learn more about how you can prepare for retirement, and make your assets work for you, the Netplan Premium course explains the ins-and-outs of retirement in easy to digest videos. If you have questions, we’ll be happy to answer them. Sign up today and get a financial companion by your side through retirement.