Post by sandy on Jun 17, 2008 16:14:49 GMT -5
Nick Bruining :osaid
AS MORE and more Australians decide to defer retirement beyond 65, are there real financial benefits in deferring your Age Pension claim?
The Pension Bonus Scheme lies at the heart of many strategies, but a proper understanding of its operation could see you deciding to claim a benefit earlier than you first thought – or at least getting your house in order before claiming.
In a range of measures designed to encourage ongoing participation in the workforce, the federal government has been steadily increasing the range of 'golden carrots' on offer. From making superannuation proceeds tax free for the over 60's, to relaxing the various work tests for superannuation membership, to special pension credits, the moves are designed to reduce the total Age Pension welfare bill – which last financial year exceeded $20 billion.
With many Australians still eligible for a part or full pension, the promise of thousands of dollars as a tax free lump sum for a few years of extra work seems appealing. The trouble is that many don't understand the basic operation of the pension system and the scheme itself.
Age Pension facts
There is a common misconception that you have to finish work to claim the Age Pension.
Not correct. Qualification is based on age, residency requirements and passing Centrelink's means tests. The residency test generally requires new Australians to have been a Permanent Resident for 10 years or more. As far as Centrelink's concerned, the income you earn from any employment will be dealt with under the Income Test.
Under this test, a couple can earn up to $232 per fortnight ($132 for singles) to collect the full pension. Any amount over this limit will see your pension reduced by 40c per fortnight for each dollar earned until the pension cuts out altogether.
For an Income Tested pension, a couple can earn up to $63,414 before the pension cuts out, and for singles the indexed limit is currently $37,940.50.
The Assets Test sees the pension reduced by $3.00 per fortnight for each $1,000 over the threshold. For single homeowners living in a house on less than two hectares of land, this threshold is $166,750 and for couples the base limit is $236,500. Non-homeowners get an extra allowance of $121,000 before the Assets Test starts to bite. The taper rate is currently $1.50 per thousand.
Put simply, a homeowning couple comprising a 65 year old man and a 63 year old woman could be earning $55,000, with assets (excluding the house) valued at $450,000 – and still receive a part pension.
The Pension Bonus
If you choose to continue working and not claim a pension at this stage, you could be entitled to a once off, tax free Pension Bonus payment when you finally do claim. For each year you work past the pension age and providing you work at least 960 hours per year, you receive a bonus of 9.4% per year, multiplied by the number of years again.
This means that for one year, you can expect a bonus of 9.4%, for three years 84.6% and for those that reach the maximum permitted five years, a whopping 235% bonus.
The bonus is a percentage of the total pension payable at the time your Age Pension is finally granted. This means that if a single person is granted a full Age Pension today and has the full 235% entitlement, they can expect to receive a one off payment of $32,083.60. A couple granted a full Age Pension can expect to receive a payment of $26,792.40 each.
While this seems attractive, remember that even with a 235% bonus, the government has saved on five years of Age Pension and is likely to have collected income tax along the way. In essence, the pension bonus only really begins to become attractive in the later years, and it is important to ensure that, when you claim, you're positioned to receive the maximum amount of pension and therefore the bigger pension bonus. In other words, it's important to ensure the effects of both the Income and Assets Tests are reduced before you claim.
Strategies such as repairing or upgrading your home, gifting, taking a trip, and using Centrelink-friendly investments such as account-based pensions, annuities, term allocated pensions and funeral funds, are all important techniques in optimising your situation before you claim.
Of course, the greatest impact is likely to be through your employment income and, for this reason, you shouldn't lodge a claim until you've ceased work.
The Pension Bonus Scheme requires one or both members of a couple to register within 13 weeks of reaching Pension Age. If you neglected to do so because you were not aware of the Scheme, Centrelink will generally allow you to back-date the registration. Once registered, you need to provide proof that you worked the required hours on an annual basis.
Claiming the Health Card without claiming a pension
One final point. Even though you may choose not to claim a pension at this stage, there's nothing to stop you claiming the Commonwealth Seniors Health Card or CSHC. Like the Pension Concession Card, it allows you to access PBS listed prescription drugs for just $4.90, and this can save you thousands over time. Similarly, if you're a CSHC holder and working less than 20 hours per week, you may also be entitled to the State Seniors Card which, when combined with the CSHC, provides discounts on local government rates and other charges.
For singles, your income needs to be less than $50,000 per annum to qualify and for couples $80,000. There is no asset test applicable to either card.
Hopefully, the choice to work will be through enjoyment rather than necessity.
Where to find out more
Centrelink's website has information and contact details. Search the Centrelink site for Pension Bonus or Assets Test
You can also download a brochure on the Pension Bonus Scheme from www.centrelink.gov.au
AS MORE and more Australians decide to defer retirement beyond 65, are there real financial benefits in deferring your Age Pension claim?
The Pension Bonus Scheme lies at the heart of many strategies, but a proper understanding of its operation could see you deciding to claim a benefit earlier than you first thought – or at least getting your house in order before claiming.
In a range of measures designed to encourage ongoing participation in the workforce, the federal government has been steadily increasing the range of 'golden carrots' on offer. From making superannuation proceeds tax free for the over 60's, to relaxing the various work tests for superannuation membership, to special pension credits, the moves are designed to reduce the total Age Pension welfare bill – which last financial year exceeded $20 billion.
With many Australians still eligible for a part or full pension, the promise of thousands of dollars as a tax free lump sum for a few years of extra work seems appealing. The trouble is that many don't understand the basic operation of the pension system and the scheme itself.
Age Pension facts
There is a common misconception that you have to finish work to claim the Age Pension.
Not correct. Qualification is based on age, residency requirements and passing Centrelink's means tests. The residency test generally requires new Australians to have been a Permanent Resident for 10 years or more. As far as Centrelink's concerned, the income you earn from any employment will be dealt with under the Income Test.
Under this test, a couple can earn up to $232 per fortnight ($132 for singles) to collect the full pension. Any amount over this limit will see your pension reduced by 40c per fortnight for each dollar earned until the pension cuts out altogether.
For an Income Tested pension, a couple can earn up to $63,414 before the pension cuts out, and for singles the indexed limit is currently $37,940.50.
The Assets Test sees the pension reduced by $3.00 per fortnight for each $1,000 over the threshold. For single homeowners living in a house on less than two hectares of land, this threshold is $166,750 and for couples the base limit is $236,500. Non-homeowners get an extra allowance of $121,000 before the Assets Test starts to bite. The taper rate is currently $1.50 per thousand.
Put simply, a homeowning couple comprising a 65 year old man and a 63 year old woman could be earning $55,000, with assets (excluding the house) valued at $450,000 – and still receive a part pension.
The Pension Bonus
If you choose to continue working and not claim a pension at this stage, you could be entitled to a once off, tax free Pension Bonus payment when you finally do claim. For each year you work past the pension age and providing you work at least 960 hours per year, you receive a bonus of 9.4% per year, multiplied by the number of years again.
This means that for one year, you can expect a bonus of 9.4%, for three years 84.6% and for those that reach the maximum permitted five years, a whopping 235% bonus.
The bonus is a percentage of the total pension payable at the time your Age Pension is finally granted. This means that if a single person is granted a full Age Pension today and has the full 235% entitlement, they can expect to receive a one off payment of $32,083.60. A couple granted a full Age Pension can expect to receive a payment of $26,792.40 each.
While this seems attractive, remember that even with a 235% bonus, the government has saved on five years of Age Pension and is likely to have collected income tax along the way. In essence, the pension bonus only really begins to become attractive in the later years, and it is important to ensure that, when you claim, you're positioned to receive the maximum amount of pension and therefore the bigger pension bonus. In other words, it's important to ensure the effects of both the Income and Assets Tests are reduced before you claim.
Strategies such as repairing or upgrading your home, gifting, taking a trip, and using Centrelink-friendly investments such as account-based pensions, annuities, term allocated pensions and funeral funds, are all important techniques in optimising your situation before you claim.
Of course, the greatest impact is likely to be through your employment income and, for this reason, you shouldn't lodge a claim until you've ceased work.
The Pension Bonus Scheme requires one or both members of a couple to register within 13 weeks of reaching Pension Age. If you neglected to do so because you were not aware of the Scheme, Centrelink will generally allow you to back-date the registration. Once registered, you need to provide proof that you worked the required hours on an annual basis.
Claiming the Health Card without claiming a pension
One final point. Even though you may choose not to claim a pension at this stage, there's nothing to stop you claiming the Commonwealth Seniors Health Card or CSHC. Like the Pension Concession Card, it allows you to access PBS listed prescription drugs for just $4.90, and this can save you thousands over time. Similarly, if you're a CSHC holder and working less than 20 hours per week, you may also be entitled to the State Seniors Card which, when combined with the CSHC, provides discounts on local government rates and other charges.
For singles, your income needs to be less than $50,000 per annum to qualify and for couples $80,000. There is no asset test applicable to either card.
Hopefully, the choice to work will be through enjoyment rather than necessity.
Where to find out more
Centrelink's website has information and contact details. Search the Centrelink site for Pension Bonus or Assets Test
You can also download a brochure on the Pension Bonus Scheme from www.centrelink.gov.au