Pensioners to get an income boost thanks to inflation

The pension rates are somewhat confusing because there are four changes a year: in July and January each year they adjust the thresholds, and in September and March they adjust the amount of pension paid.

These changes can sometimes produce anomalous outcomes, and savvy pensioners should keep an eye on the changes, to see if they can tweak their situation to achieve better financial outcomes.

Go to my website, www.noelwhittaker.com.au, to download the new pension charts and play with the age pension calculator and the deeming calculator, both of which have been updated with the new numbers.

The last pension changes took effect from July 1. Because they raised the thresholds but not the amount of the pension itself, only part-pensioners got an increase in their pension.

This meant the most needy pensioners - those under the asset and income thresholds - got no pension increase at all, despite record inflation. In fact, they went backwards. But part-pensioners who were just over the bottom threshold ended up with a full pension because of the threshold increase.

For example, on July 1, 2023 the level of assets at which the pension starts to reduce for a couple rose from $419,000 to $451,500.

That meant that pensioners who were missing out on the full pension due to a tiny amount of excess assets ended up with the full pension because of a rise in the cut-off rate.

But when the rate of pension goes up, the upper limit threshold cut-off point automatically increases as well. So now retiree pensioner couples have cracked the million dollar mark in assets: the cut-off point for a homeowner couple has risen from $986,500 to $1,000,003.

Given the sad state of government finances, there must be some who will be thinking, "Why should people with $1 million of assets, plus most likely a luxury home, be getting welfare?"

Note how the tests intersect: Centrelink tests you on both the income test and the assets test, and then applies the one that gives you the least pension.

But the tests are out of kilter, which can lead to some unusual results. For example, if you're asset-tested, deeming is not relevant - it's only used for the income test.

A couple with $1 million of assessable assets can earn $95,000 a year income because they're not assessed under the income test.

If those assets included $900,000 of financial assets they would be assessed as having a deemed income of just $18,246 a year, but they still have scope to earn an additional $76,754 a year.

There are now pension-friendly products that may enable self-funded retirees to get a part pension and all the concessions to go with it.

For example, a couple with $1.1 million of assessable assets could invest $300,000 in an approved lifetime income product. The term "approved" means that only 60 per cent of its value is assessed for the assets test - it's as if they've disposed of the other 40 per cent.

Their assessable assets would drop by $120,000 to $980,000 and they would qualify for a pension of $68 a fortnight plus all the concessions.

They would also receive a lifetime income from the new product, which could be worth $20,000 a year, indexed, depending on their situation.

If you think these sort of strategies may benefit you, talk to a good financial adviser for more details.