Most Australians, given the option and the means, would choose to own their home rather than rent. The simple fact, though, is it’s just not possible for many. This is true for all age groups. But as one industry expert points out, renters who also collect the Age Pension are financially handicapped in another way.
The cause of this extra handicap, according to new analysis, is the way Age Pension rules are designed. The analysis, completed by Retirement Essentials’ Jeremy Duffield, shows retirees who don’t own their own home, particularly singles, are disadvantaged.
“The pension system is incredibly biased against the interests of single non-homeowners,” Mr Duffield said. And it is these who are already “the most challenged segment of the retirement community”.
How renters on the Age Pension are disadvantaged
The disadvantage arises from government mandated threshold rules, Mr Duffield said. “Many who don’t own their own home, particularly singles, are being disadvantaged by the income and asset thresholds,” he said.
Services Australia assets test rules mean that $543,750 is the maximum in assets a single, non-homeowning retiree can have and still receive the full Age Pension. That’s well above the $301,750 asset limit for single homeowners. It’s even above Services Australia’s stated asset limit of $451,500 for a retiree couple who owns their home.
On the surface, then, that gives renters an advantage over homeowners. It is an intentional advantage, designed in part to compensate for the family home being exempt from the assets test. It also recognises renters will have a higher cost of living (specifically the rent they pay) than most homeowners.
However, outcomes can go awry for renters with the application of another rule for Age Pension eligibility – the income test. Unfortunately for pension applicants, the test that produces the lower pension amount is the one applied by Services Australia.
Further to this, the vagaries of the income test also affect how much an applicant can have in assets. So, a single non-homeowner can only have up to $289,000 in financial assets, including superannuation, before being affected. That’s actually lower than the single homeowner threshold. Beyond that amount they would start receiving less than the full Age Pension.
The income test makes an assumption about how much assets earn in terms of interest. This is known as ‘deeming’. Deeming for a single person is 0.25 per cent on the first $60,400 of financial assets. Any amount beyond that is deemed to earn 2.25 per cent. Whether your assets actually earn those rates is irrelevant to the application of this rule.
A practical example
A single, non-homeowner with assets of $543,750 as stated above (all in super) would be deemed to have earned about $11,000 on those assets. This exceeds the income test of just over $5300 for a single person to receive the full Age Pension.
In this example, the person would receive $26,163 worth of Age Pension.. That’s 10 per cent below the full Age Pension of $29,024, including supplements.
In effect, applying the rules to renters receiving the Age Pension cancels out the asset threshold advantage they are theoretically supposed to enjoy.
The solution for those on the Age Pension
Sadly, there does not seem to be an easy solution under the current rules. It’s likely that the ‘cancellation’ effect of the rules was unintentional, but the government has not flagged any change.
Short of buying a house, the best thing you as a renter can probably do is check your entitlements, and then consult a registered financial adviser.
Were you aware of the anomaly the Services Australia rules create for renters on the Age Pension? Do you think the government should introduce changes to redress it for those adversely affected? Let us know via the comments section below.
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There should be a universal age pension like in any other civilized country. This would save a lot of public servant’s costs as well as making life for retirees so much easier and simpler. All we want as we get older is to simplify life and get on with living, not having to worry about every cent we spend and how to arrange our financial affairs to get the most out of the government’s complicated age pension system.
Agree the pension should be universal and the cost of making it so should be covered by capping the super tax concessions to about half a million dollars of super balances so it stops being used as a massive tax dodge by high income earners.
Agree totally. Also where is the cost of living help for self funded retirees. All these people have done through out their lives is save for retirement by doing without and now they are punished by not getting all the benefits or the pension. If you are only just over the eligibility threshold to get any part of the pension you are doing it tough too!
I’m a single, non-homeowner with no other income (eg from super).
On the subject of Rent Assistance, why can’t the rent assistance be increased to be one week’s rent for everyone with an upper limit, not this very paltry amount we receive now. (It would give me and extra $61.80 per fortnight for my rent), thus freeing some funds for other expenses.
I know how to budget, and have been doing so for over 30 years now.
NSW Housing insists that we can afford $319 per week! In no way is this affordable, nor within my budget – they don’t take into account all the other expenses that we have to pay just to have good food on the table, affordable electricity/gas, insurances, phone/internet (the lowest plan I can find), and of course, car expenses – forget using public transport in the country, there’s none which goes anywhere near where I live, and I couldn’t walk the distances they expect me to due to a disability, so a car is essential to me.
No offense, I feel anyone who worked hard when they were young would NOT receive an age pension. And some retirees are still working and paying tax to support those who don’t work.
I believe we should have a universal age pension. I believe people over age pension age should not pay income tax.
While I agree with the statement that the aged pension should be universal, I am a little perplexed by this article. Yes, the income test would deem a person with assets over $289000 to have income and reduce their pension accordingly. But surely they WOULD have income, and it would almost certainly be MORE than the deemed amount. So what is wrong with reducing the income of someone with $543750 by $2861 when they have superannuation income of most likely at least $27187.50 per annum to top up their pension income? (That’s calculated at 5%. Most super funds are delivering more than that!). Even if they draw the minimum required to be taken from super in retirement, they would top up their pension with $21750 and only lose $2861, whereas someone who worked to earn $21750 would lose around half of that in pension entitlements. So overall, this single renter is doing very nicely thank you. Not disadvantaged at all! In fact, they have a higher income than a couple on a full aged pension and also higher than many self-funded retirees who get NOTHING from Centrelink!
Can we please stop inventing claims of hardship and focus on reality?
We SHOULD have a universal pension. Nobody should be penalized for saving or for working after retirement age. Nor for investing sensibly. But no single person with $543750 in super is struggling, even if paying rent. If we are going to play the sympathy card and ask the govt to review pensions paid to renters, let’s please concentrate on people like Sue Bailey who have no other income or assets.
I’m guessing from your response that you think if someone has dollars in assets then it all must be in super which is not right as assets can be made up of other things beside money which means they can be at a dissadvantage
I think the government make the pension options complicated for two reasons.
1. It keeps the unemployment figures down. i.e Centrelink staff numbers.
2. It gives them more votes. Centrelink employees.