Thomas Noad* sees retirees considering part-time work and concludes that if they’re on an account-based pension it may not be worth their while.
Photo: drewmeredith
Back in 2015, the Federal Government changed the way it assesses allocated or account-based pensions under the income test.
The change meant that if you earn an income from working you could risk reducing your Age Pension entitlement permanently.
Deeming rather than deductible
If you have been receiving income from the same account-based pension and have been in continuous receipt of the Age Pension since 1 January 2015, then the income from your account-based pension is ‘grandfathered’ and treated differently compared with if you do not meet these requirements.
With grandfathered account-based pensions, the Government applies a deductible amount to your payments to determine how much of the Age Pension you are eligible to receive under the income test.
However, non-grandfathered account-based pensions are deemed, applying an interest rate to the balance of your account instead of the deductible amount method.
In many cases, having a grandfathered account-based pension can be favourable to having it deemed under the income test, but of course, there’s a catch.
A continuous Age Pension
The grandfathering only applies as long as you have continuously received the Age Pension since 1 January 2015 and continue to do so in the future.
If you earn any sort of income that reduces your Age Pension to zero for a fortnight or more, then you lose your ‘grandfathered’ status—permanently.
You also lose this status if you change to a new account-based pension product.
What does losing ‘grandfathered’ status do?
If you’re income-tested and you lose your grandfathered status, you’re likely to receive less Age Pension than you do now.
If you’re assets-tested this change doesn’t affect you, although it might if you change to being income-tested.
So for someone with a grandfathered account-based pension, how does this relate to working?
Working in retirement can be a good thing for some people. Aside from the social benefits it can provide, it can boost your retirement income and help your retirement savings last longer.
What’s more, the first $250 of employment income you earn each fortnight is exempt under the income test, and unused amounts can be accrued up to a total of $6,500.
While going back to work for a week or two might look attractive, if your income is a combination of your grandfathered account-based pension and the Age Pension, then you might be putting your Age Pension at risk by working.
This all comes down to thresholds in the end.
As a single person you can earn up to $4,472 in a year before it affects your Age Pension ($7,904 for couples). This includes your salary, account-based pension income and any other income.
Once you go over that threshold, the Government reduces your Age Pension by 50 cents for every dollar you earn.
As long as you earn less than the amount that would reduce your Age Pension payment in any given fortnight to zero, you’re okay.
If you earn more than that amount just once, then you lose your grandfathered status and all your future Age Pension payments will be calculated using the deeming rules.
Take Bill for example
Bill, who is single, works casually two days a week earning an income of $30,000 p.a. He also receives $15,000 p.a. from his account-based pension, of which for him currently nil is assessed by Centrelink under the deductible amount method, as well as $393 each fortnight from the Age Pension.
He can afford to earn up to another $1,069 in any fortnight without losing his grandfathered status.
He needs to be careful if his employer asks him to pick up more shifts, such as to fill in for other colleagues on leave, because if he earns more than $1,069 in a fortnight, then his account-based pension will be deemed in future, reducing his Age Pension to $294 per fortnight.
Considering working? Ask your financial planner
While this might seem like a disincentive to work, you just need to make sure that you don’t earn enough to push your income over the threshold.
Your financial planner can work out all the numbers for you, and tell you exactly how much you can earn without affecting your Age Pension.
Take the next step
With the right help, planning for your retirement is easier than you think. For more expert tips, visit the StatePlus website at this PS News link.
*Thomas Noad is a registered financial adviser with StatePlus and can be contacted at [email protected].
StatePlus, formerly State Super Financial Services, is one of Australia’s leading providers of financial planning. Since 1990, our retirement experts have provided life changing financial advice to public sector employees and their families. With a StatePlus planner by your side, you can feel confident about reaching your financial goals to live the retirement you really want.
This article was published in November 2018. The information in this article is current at the time of writing the article. This is general information only and does not take into account your personal objectives, financial situation or needs. It is important to seek financial and taxation advice that takes into account your personal objectives, financial situation and needs before making any decisions based on this information.
