The Australian Government pays an Age Pension payment to eligible Australians aged 67 years and over to help fund basic living costs in retirement.
The payment is paid on a fortnightly basis up to a maximum amount.
As of March this year, the Age Pension is a maximum total payment of $1,200.90 per fortnight for singles and $1,810.40 for couples combined. These sums include the maximum basic rate, the maximum pension supplement, and the energy supplement.
The maximum payment isn't available to everyone, however. It depends heavily on your income and what assets you own.
The problem is that many Australians look at the income test and miss vital information about the asset test. Overlooking asset limits could reduce your Age Pension significantly. Or you could lose it altogether.
To help, here are the top five most important things to know about the Age Pension asset test before you reach retirement age.
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1. It includes everything, except your home
The asset test literally includes everything you own in full, in part, or have an interest in.
This includes S&P/ASX 200 Index (ASX: XJO) shares, other financial investments, home contents, personal effects and vehicles, real estate, annuities, income streams, superannuation, SMSFs, partnerships, private trusts, and private companies.
It also includes any assets held outside of Australia, and any debts owed to you.
And yes, even your superannuation balance counts.
It does exclude, however, the home that you reside in.
2. Limits and rules vary
In order to receive the full Age Pension, single homeowners can own assets (including superannuation) up to a value of $321,500, and non-homeowners can own assets up to $579,500 in retirement.
But a couple has a different threshold, and it's not double the amount of one person. A couple combined can own up to $481,500 in total if they own a property, or $739,500 if they don't.
3. Centrelink has strict rules about gifting money
If you're aged 60, and you think you'll be over the threshold for the asset test, it can be tempting to gift a chunk of money to a friend or family member to influence your Age Pension eligibility.
But Centrelink has strict rules around this.
An individual can give away up to $30,000 over a five-year period before it will affect their assets test. Any amount over $30,000 will be counted, for five years, as an asset and included in the asset test.
The good news is, at age 55, Australians can gift any amount of money without immediate penalties from Services Australia, as long as they are at least five years away from Age Pension age (age 65).
So if you think you'll be over, act now, at age 55, to make sure you meet asset test requirements.
4. Downsizing is a bad idea
The property you reside in is not included as part of the Age Pension asset test. But if you decide to downsize to something smaller and free up some cash, it could quickly put you over the limit.
If you sell your $1 million primary residence, for example, and downsize to a $500,000 property, that $500,000 difference then becomes an assessable asset.
5. Age Pension deeming rules apply
Deeming is a calculation centrelink uses to determine how much income you make from your assets. Instead of looking at how much your assets actually earn, deeming rules are used under the assumption that the asset earns a set amount of income.
The financial assets of single Australians have a deeming rate of 1.25% for the first $64,320. Anything over this amount is deemed to earn 3.25%.
Couples have a 1.25% deeming rate on their first $106,200 of combined financial assets (this includes superannuation). Anything over $106,200 is deemed to earn 3.25%.
What happens if I go over the Age Pension asset limits?
It's not all bad news.
At age 55, you still have a 10 year window before being eligible for the Age Pension. That's plenty of time to work out how to ensure you can pass the asset test.
But if you're over those limits, there is still hope.
Your assets can total up to $722,000 if you're a single homeowner, and $980,000 if you're a non-homeowner. You can't get the full Age Pension, but you're still entitled to a part-payment depending on where you fall between the two brackets.
Couples are also entitled to a part-payment so long as their combined assets aren't more than $1,085,000 for homeowners. Non-homeowners can own assets totalling up to $1,343,000.
