Monday, November 9, 2015

The Age Pension and Airbnb

We have received quite a few requests for information regarding running and Airbnb – or equivalent – while receiving the age pension.

There appears to be two reasons why people are considering this option:
  • To reduce their assessed asset base leading up to new pension rules in 2017. To avoid ‘losing the pension’ pensioners are considering home renovations to enable the provision of an income generating service such as Airbnb.
  • Recent press articles have implied pensioners are ‘hogging’ prime residential space. 

So what happens if an age pensioner provides a service such as Airbnb?

Currently Centrelink will treat the income as a ‘board and lodging’ category income. In a more traditional ‘board and lodging operation’ the declared income is more easily declared. We understand this is currently understandably being reviewed by Centrelink.

So what happens if the income is sporadic? Then it falls into a type of wage/income reporting where fortnightly income reporting is the norm.

What about costs such as cleaning, maintenance etc? Can I declare these as costs and only declare the net income? Centrelink do have a ‘simple’ one-page Profit and Loss document that enables a reporting of gross income and costs. This document can be submitted annually, quarterly or as often as required. In some cases, this maybe the preferred reporting method.

Can I report the income annually? As above if you can accurately declare your income from the Airbnb then you can complete the P&L sheet. Remember if you under declare your income you will be liable to repay any overpayments. However, if you over declare Centrelink will not ‘make amends’.

As always remember that additional income may not necessarily have any impact on your pension. For example, we assisted an age pensioner who was an ‘asset based’ and receiving a part pension. In this case the client ‘spent’ $100,000 on home renovations to provide for the Airbnb service. The client’s pension increased as his deemed asset – e.g. bank account – went down by the $100,000 and the home is exempt from the assets test. His net income from the Airbnb service was below the income threshold - $6,500 – so he benefitted both from an increased pension and this additional Airbnb based income.

Now the above relates only to Centrelink and not the ATO. You should seek advice from your accountant and/or your financial advisor for any tax implications, including any capital gains implications etc.

Sunday, September 20, 2015

Age Pension : 20 September 2015 Updates

The tables below set out the revised age pension rates. These will be applicable until 19 March 2016. Our Pension Estimator/Calculator has been updated to reflect these new rates.

Age Pension rates increases

Couple (each member of couple, per fortnight - including the Energy Supplement)

20 March 2015 20 September 2015 Increase
$648.40 $653.50 $5.10 pf

Single (each member of couple, per fortnight - including the Energy Supplement)

20 March 2015 20 September 2015 Increase
$860.20 $867.00 $6.80 pf

Please note that the Centrelink /Human Services site remains ‘down‘ and we have not been able to verify any changes to deeming rates or the impacts for 2017 pension as a result of recent Budget changes. As soon as the Centrelink site is restored we can verify those details.

Monday, July 6, 2015

Couple with $53,000 pa in 2017?

Our most popular recent blog entries have been the articles relating to issues on:
  • couple earning $53k pa - $32,718 pa in pension and $20,000 pa wages and other income.
  • how much will I lose in 2017.
  • periodic work and the the work bonus scheme 

Age Pension Calculator and the Work Bonus Scheme

Our Pension Calculator also includes an estimate of how much age pensioners may gain/lose come Jan 2017 - remembering that these changes are not grandfathered or tapered.

So let’s combine all the above and update the situation whereby a home owning couple can have combined earnings of approx. $53,000 pa.

Deemed Income 

First though we should explain that with respect to deemed income:
  • we are treating the deemed income as an estimate for actual income, as this is the same way that Centrelink does. You may be able to achieve higher rates than those deeming Centrelink rates. Equally you may achieve less. For example Centrelink will assume that you will earn more than $2,000 of interest from a total of $100,000 in deemable assets - such as bank accounts.
  • There is no consideration of inflation. The deemed income is often merely just keeping up with inflation and many will argue that there is actually no 'real' income achieved. However, for the purposes of these examples we will treat deemed income as Centrelink does.

1. $53,000 a year and on the full pension

Age Pension Calculator

In our pension calculator we enter the home owning couple as having $250,000 in deemed assets - e.g. bank accounts - and each age pensioner having $6,500 per annum of wages.

The calculator estimates that the age pension should be the full pension entitlements of $648 pf or $16,859 each per annum. The calculator also shows that $6,916 pa was deemed income from the $250,000. So there is a combined total of $53,634 pa - ($16,859 for each age pension, plus $6,500 each for wages, plus $6,916 combined deemed income).

Now scrolling down the calculator you will see that the pension calculator also shows that in 2017 there is estimated to be no changes to those pension entitlements.

Age Pension Calculator

2. $53,000 pa and $0.5m ‘in the bank’.

Now the 2017 pension changes increase the lower assets test threshold - the level before there is an impact on the pension. So let’s increase the couples assets by doubling their deemed assets - such as bank accounts, or super - to $0.5 million.

Here you will see that there is only a combined $400 annual loss in pension entitlements between the current situation and 2017. The couple would still be achieving a total ‘income’ of more than $53,000 pa. This is comprised of $12,802 each for the age pension, $6,500 each in wages, and now $15,401 in other income sources - such as deemed income.

Age Pension Calculator

3. $0.5 m ‘in the bank’ and one partner stops work.

In the above scenario the $0.5m in assets meant that the age pension was a ‘asset based’ pension. So if one age pensioner stops work then there is no change to the age pension. The couples total annual income therefore drops by the $6,500 'lost' wages.

4. $0.5 m ‘in the bank’ one partner stops work and the other doubles their wages.

In this scenario the couple may say “my partner has stopped work so I will earn 'their' wages”. That partner then earns an annual wage of $13,000.

Now the couple will only get the benefit of one Work Bonus Scheme credit of $6,500. However as the pension is still an asset based pension there is no change to the total income as shown in 2 above - that is, more than $53,000 pa for all income sources.

5. $0.5m ‘in the bank’, one partner working periodically.

Our blog on periodic work provides another explanation of the situation.  However, let’s assume here that the one working partner is earning the above annual $13,000 but these earnings are over 4 periods of work. For simplicity we will say 4 days a week at $200 per day, for 4 weeks, for 4 periods  during the year. Or in Centrelink fortnightly terms 8 fortnightly periods.

If the earnings were equally spread over the full year then each partner would be entitled to same as above with no change to the total income situation. These fortnightly age pension payments are shown as Pension A in the table below.

The Pension B column is the fortnightly pension payment when the work is periodic as described above. Whilst the couple still retain a pension entitlement over all periods the total pension entitlement is reduced by more than $3,000 over the year. If the wages were over only two periods, or the wages were higher, then the differential loss is even greater.

work bonus scheme

Monday, June 29, 2015

1 July 2015 Age Pension Deeming Rate Changes

This article summarises both the recent and forecast changes to the age pension, specifically the changes to deeming rates.


1 July 2015 - every July the Government reviews the deeming rates, income and assets thresholds

20 March 2015 - every March and September the Government reviews the pension rates.

Our age pension calculator reflects the above changes and forecasts age pension entitlements as at 1 July 2015.

1 July 2017 - a major change in age pension structure is proposed. 

Our age pension calculator forecasts a reduction in the age pension that most pensioners can expect.


1 July 2015 - The deeming thresholds have changed slightly while the deeming rates have remained unchanged, with the ‘upper’ rate of 3.25% still well above cash rates - refer below,
  • for financial investments worth up to $48,600 (for singles - previously $48,000) and up to $80,600 (for couples - previously $79,600), a deeming rate of 1.75% applies.
  • for financial investments above $48,600 (singles) or above $80,600 (couples), a higher deeming rate of 3.25% applies.

1 July 2017 - The Government has announced that from 1 July 2017, the deeming thresholds will be significantly reduced. While the focus has been on the impact of lowering the assets threshold resulting in the majority of age pensioners losing entitlements these new deeming thresholds will also impact on a large sector of age pensioners. Specifically, from July 2017, the Government intends to reduce the deeming thresholds for the lower deeming rate to $30,000 (singles - from $48,600) and $50,000 (couples - from $80,600), subject to legislation.

For information on deeming please refer to the Governments web site.

Sunday, June 28, 2015

Tapering Grandfathers

The Greens have announced they have struck a deal with the Government and agreed to a reduced age pension for most.

Over 4 years the $2.5 billion dollar saving will be the biggest single measure in the 2015 budget.

Most commentary has been focused on the impact of the assets test where some pensioners are to lose more than $13,000 pa. What must also be taken into account is that many pensioners may now have an income based assessed pension. You can not asses the impact via the assets test alone. There is a cumulative impact of the changes when the pension operates both on assets and income test to determine which generates the lowest entitlement. There will be far more age pensioners impacted than has been reported.

There must be a recognition of what all too many say about the age pension. Those currently applying still remember the days when their wage had a deduction for contributions to the age pension. Many have shown us their pay slips with that deduction. 

Now all that has changed, compulsory super was introduced and many adjusted their saving’s plans. They now find they are excluded from the age pension despite making contributions  to the pension for the majority of their working lives.

What should be considered is a period of tapering of entitlements in recognition of the many years of contributions. A similar concept exists when an age pensioner moves overseas and is paid in proportion to the number of years ‘worked’ in Australia - the Average Work Life Residence or AWLR.

To outline the concept, and in rough terms, someone now 65 and applying for the pension would have approximately 45 years under the old system and 20 years under the new compulsory super system. So they should be ‘grandfathered’ with an approx. 70% of their entitlement; recognising that the majority of their life was operating under the old  tax contributions to a pension. At least better than loosing the pension entirely. 

Now under the AWLR formulae the number of years start at the age of 16. If this rule was also applied to the proposal then the proportion of pension would be approx. 45%. Again at least better then nothing.

Over time the number of age pensioners receiving this proportional rate would reduce and eventually become redundant.

Many will often cry out when changes are proposed for the superannuation system or taxation, requesting grandfathering rules. Why has there been no discussion about grandfathering these changes or at least tapering these changes?

It’s probably too late to go back to the old system. But its not too late to go back to a system like in NZ where everyone gets the age pension - nearly all funded by the saving in bureaucracy costs.

Wednesday, June 17, 2015

The Age Pension Work Bonus Scheme and Periodic Work

Several recent queries have suggested we update our knowledge base on the Work Bonus Scheme (WBS).

The WBS provides a facility whereby the first $6,500 of age pensioners 'wages' is exempt from the income test. The WBS can apply to both you and your partner thereby providing a total of $13,000 of exemptions.

In a previous blog entry we discussed how a couple on the full pension was ‘earning’ more than $20,000 on top of the full pension. Each were employed on $6,500 pa and had a $250,000  bank account earning a deemed income less than the 'other' income threshold. This is because the WBS is in addition to the the income test threshold allowance of just over $7,000. So a total of more than $20,000 can be exempted from all classes of income test.

Now it should be noted the WBS only applies to only certain classes of employment - refer below.

What happens if the age pensioner does not earn a consistent wage - i.e. not a steady amount over the year - yet still earns less than the allowable $6,500 pa? Say working during school holidays.

The WBS has a ‘bank’ or balance that accumulates over time - to a maximum of $6,500.

If you earn less than $250 in a fortnight then your employment income will be assessed as $0 and the difference between what you earn and $250 will be added to your WBS balance. So if you earn $200 in a fortnight then $50 will be added to your WBS balance.

If you do not work then $250 will be added to your WBS balance.

If you earn $350 in a fortnight and have more than $100 in your WBS balance then you will be assessed as $0 employment income for that period.

Now let’s look at a more sporadic employment situation. Lets say you do not work for 10 fortnights and then earn $2,000 in a fortnight. You will have accumulated $2,500 in your WBS balance over the first 10 periods. So for the 11th period you will be assessed as having $0 employment income and your WBS balance will drop down to $750.

Then say you don’t work for 4 periods and then earn $4,000 in the fortnight. In the period of earning that $4,000 you will then have accumulated $2,000 in your WBS balance; so your income will be assessed as $2,000 and your pension will be reduced, and your WBS balance will be back to 0.

So in this situation your annual earnings may not be the full $6,500 pa yet you have not received your full entitlement.

NOTE: Centrelink states:

“The Work Bonus applies to income from employment, including wages paid in Australia and outside Australia.
The Work Bonus applies to income from employment, including:
  • wages paid in Australia and outside Australia
  • leave, where you remain an employee of the same employer and
  • director’s fees

We will apply the Work Bonus to your assessable employment income before your pension is paid each fortnight.
The Work Bonus is not applied to income from:

  • leave payments if you have terminated your employment
  • self-employed income
  • payments to you as a principal from sole traders or partnerships
  • investments or
  • superannuation income”

Monday, June 15, 2015

Life Expectancy and the Age Pension

I recently read another article incorrectly suggesting that the “you would be expected to live until 84”.

Excuse us for being a little morbid and even pessimistic when we talk about dying.

Approximately 22% of Australian males die before they turn age pension age. For women it is approx. 15%. Ref: AIHW

Your life expectancy changes as you get older because as you survive birth, childhood and adolescence, the chance of reaching an older age increases. Life expectancy at different ages can be presented as the number of additional years a person can expect to live, or, their expected age at death in years.

For example the life expectancy of men at birth is currently 80.1, at age 45 it is 81.8 and at 65 years old life expectancy is 84.2. Ref : AIHW

This is not an average. It not not saying that 50% of males are over the age of - say - 84. It is more like if you were a male and 65 years old then there is a 50% chance of you dying before you turn 84.

So being pessimistic there is a 50% chance you will not need any super/pension at the age of 84. But fund managers and others don’t want you thinking like that.

Monday, June 8, 2015

Age Pension Portability

We have again been called in to help an age pensioner who was incorrectly assessed by Centrelink with respect to ‘living’ overseas.

Centrelink state that from 1 July 2014 new rules will apply regarding the period of Australian working life residence required to receive a full means-tested pension outside Australia after 26 weeks. To continue receiving your full rate of Australian pension you will generally need to have spent 35 years of your working life in Australia. This is an increase from the current requirement to have 25 years of Australian working life residence.” Read more here
and “as at June 2012 there were 73,158 recipients of the Australian Age Pension residing overseas.”.

Without going into the individual case let’s look at two scenarios

Tony moves to Italy and still gets the full pension entitlement.

Tony had been living and working in Australia since he was 15. After he retired and claimed the age pension he decided to travel overseas to Italy and live with family for a few years. Because Tony had been a resident in Australia for more than 50 years he continues to receive his pension while he is living in Italy.

Tony continues to receive his entitlement as he has more than 35 years “working life”. The Australian Government calls this the Australian Working Life Residence (AWLR) - more here. It does not actually mean that you need to be working for those 35 years; you could be a student for many years, take long holidays, be ‘on the dole’ for the whole period etc.

Joel moves to Thailand and only receives part of his pension entitlement.

Joel had a business that went bankrupt and he lost everything. After 20 years of running a small business and only 3 years before he turned 65 he decided to live with friends in Thailand and avoid ‘going on the dole’. There is no international agreement with Thailand so Joel must return to Australia to claim the age pension - for information on countries with agreements.

Joel submits his claim and then goes back to Thailand to say goodbye, sell his possessions etc. Centrelink then treated him as a non-resident and his claim is rejected. He returns to Australia and re-submits his claim. He then lives in Australia on the full pension with rent assistance, Commonwealth Seniors Health Card, Pensioner Card etc. If he leaves Australia within 2 years Joel will loose eligibility and will need to re-apply upon returning to Australia.

After 2 years residing back in Australia his entitlement is then deemed ‘portable’ so he goes back to Thailand. Joel then finds out he is then only entitled to approx. 80% of his pension. 

This is because he only had 28 years of “working life” or AWLR. An approx. calculation is 28 working years / 35 = 0.8 or 80%.

NOTE: This blog contains general information only and does not constitute advice. If you need advice on the age pension portability please contact us or call Centrelink on 132 300.

Sunday, May 10, 2015

So who loses nearly $10,000 pa under the proposed new pension rules?

The Federal Government is tightening the age pension assets test. The Government has estimated that 91,000 pensioners will completely lose their entitlement and a far greater number of age pensioners - nearly 250,000 - will receive significantly less. While a smaller number of age pensioners will receive a modest increase.

So let’s have a quick look at how much the majority of pensioners will lose. The following table is a very basic analysis of the implications. The table is for a home owning couple who have the following level of assets. For demonstration purposes we will assume they have no other assessable income or assets.

It has been proposed by the Government that the pension asset thresholds - or cut-off-points - are to be adjusted.

Age pensioners who have assets of less than $286,500 - the current ‘lower’ threshold - will have unchanged benefits as a result of this change.

Age pensioners who have assets of value up to the new threshold - $375,000 -may receive slightly more. For example, the table shows couples with assets of $350,000 will receive an additional $2,500 pa - or approx. $50 each a week more. 

Then the application of the new upper threshold ‘kicks in’. For example those with an asset level of $500,000 will receive nearly the same while those couples with assets of $800,000 will receive approx. $10,100 pa less - approx. $220 a week less.

Table - Couples who own their home:

Current Rate
Pension $pa
Proposed Rate
Pension $pa
Pension $pa

Now the above does not take into consideration other recent changes to the pension such as the application of deeming rates to allocated income streams. For example, some of the above asset levels may be associated with ‘super’. In this case the pension may be additionally impacted by additional deemed income. Further the deemed rates remain high in comparison to ‘cash rates’.

We have already seen evidence of financial planners adjusting 'asset' levels to accommodate these revised thresholds. We may even see even more luxurious 'granny flats' being built?

A new age pension calculator that predicts your revised pension under these new rules is being developed. Go to our web site for more information

Wednesday, April 29, 2015

Full Pension and $53,000 pa

We recently assisted a number of financial advisors on methods to achieve the full pension while still working. To explain the options we will look at the process in small steps and be a bit simplistic. In subsequent post we will expand upon the scenario. Let's say we have a couple - Jack & Jill - who run a small business, are both of age pension age and are paying themselves a small wage. We may have both Jack and Jill paying themselves $6,500 per annum - which is the limit of the Work Bonus Scheme. Hence this combined $13,000 pa is exempt from the income test. Now lets say they have other earnings of $7,000 pa - such as additional income. More typical would be if this income were as a result of deemed income. For example they may have $250,000 in bank accounts - below the assets test - which results in a deemed income of just under $7,000 pa. Again this income is below the income test threshold of approx. $7,400 pa. So they now have a combined income of $20,000 pa - wages and deemed income. The full pension for a couple is more than $33,000 pa. The combined income is more than $53,000 pa.