How shares affect the Age Pension

YOURLifeChoices member Janet is concerned that an elderly acquaintance may not be getting the correct Age Pension assessment. Craig Hall of NICRI aims to clarify what his options are.

Q. Janet
If you own shares in a company that has never made a profit nor paid a dividend, does this prevent you receiving any pension? An elderly gentleman that I know created a company of which he is a major shareholder.  He did this because he invented something, which one day perhaps may be used and will create an income, but it is still a work in progress.

He told me that because of the shares he owns, he can’t get any Age Pension. He is in his seventies, and he and his wife live off her income, as a part-time receptionist.  Because she wishes to retire, they are thinking of selling their home and downsizing in an effort to create some income to live from.

It seems so unfair, that although they have both worked all their lives and are both still working, because the invention from which he receives no income, are unable to get an Age Pension.

What would be your advice?

A. Provided by Craig Hall, NICRI
I refer to your enquiry regarding Age Pension eligibility being affected by ownership of shares in a private company.

Assessment for private company shares differs to publicly listed shares, but nevertheless, they are still assessed. Legislation relating to assessment of such assets was changed – effective 1 January 2002 and can be complex. Details of the assessment method for such assets depends if a market exists or not. If one does exist then generally market value is used to determine the value, if no market exists a different method is used (often referred to as the ‘net asset backing’ method). This method, in basic terms takes into account the value of the company assets (both tangible and intangible) less liabilities, divided by the number of shares issued to determine the share price. Based on the information provided, it would seem likely that this method would be used to determine the value of his share of the company.

More detailed information on this method as well as other government income support assessment information can be accessed by searching ‘Guide to the Social Security Act’ via the Department of Families and Housing, Community Services and Indigenous affairs (FaHCSIA) website www.fahcsia.gov.au.

Once the asset value is determined, it is assessed along with any other assessable assets (such as money in the bank, cars, home contents etc.).

Click NEXT to find out how this affects the Age Pension assessment.

Similarly, once the income (if any) has been determined, it is then added to any other assessed income. Once both the assets test and income test is conducted, the test that pays the least amount of Age Pension is applied. This assets and income assessment is reviewed annually.

Items which are also assessed under the income test include financial assets using the deeming provisions, part of superannuation income stream payments and rental income. Also, if applicable, and in this case, your friend’s wife’s employment income. However if she has reached Age Pension age, 50 per cent of the first $500 per fortnight is not counted, effectively allowing $6,500 of her annual income to be free of assessment.

Currently for couples who own their own home, the cut off limit for a part Age Pension under the assets test is $1,050,000. Under the income test the cut off threshold for a part Age Pension is $2,597.60 per fortnight. The thresholds to receive the full Age Pension payment are $273,000 in assets and $268.00 income per fortnight respectively. The information provided would indicate that their assessable assets and/or income is currently greater than these limits, making them ineligible for any Age Pension and raises the question if the assets held are meeting their needs and objectives.

The issue with this particular situation is that there seems to be no income (dividends) paid to make up for the Age Pension or there may be other assets and/or income which are assessed that prevent them being eligible.

So what can they do? Well firstly they need to prepare a thorough budget to accurately determine their expenditure and identify where potential savings can be made. They may need to list any future expense items to determine what income levels are required.

They may also need to look all at the current assets they own and determine why they aren’t generating enough income, keeping in mind that $1m in a term deposit currently at 4.5 per cent could generate $45,000pa. Perhaps they need to re-assess the value of the shares because if they are over valued then they are affecting the Age Pension assessment. If the value is correct, then they would need to decide if it and/or their other assets are a worthwhile investment, keeping in mind the following issues:

  • is the current level of income being generated sufficient to meet their needs
  • when is it likely income will be generated
  • what is the likelihood of a capital return
  • can the funds tied up in the company be better utilised to fund their retirement
  • are there other assets that can be better utilised to meet their needs

In pursuing the matter, NICRI suggests they discuss the Age Pension assessment and the assessment of the shares in the private company with a Financial Information Service Officer (FISO) from the Department of Human Services (formerly Centrelink).  It would also suggest they seek professional advice from a licensed financial planner who specialises in private company structures to discuss possible strategies available to best meet their needs and objectives.

I hope that this information has been helpful and if you have any further questions please don’t hesitate in contacting NICRI on 1800 020110 or via email at [email protected].

It is important to note that the National Information Centre on Retirement Investments Inc (NICRI) does not provide or imply financial advice. Any information provided is on our understanding of legislation and we suggest that you confirm details with relevant government departments and seek professional advice before proceeding. 

Written by craigha



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