We had a new enquiry from retired couple Alan and Jenny recently. They receive a part Age Pension to top up Alan’s Allocated pension.
Their part Age Pension is based on Centrelink’s Incomes Test.
Alan had set up his Allocated Pension on retirement years ago. After the change to Centrelinks treatment of Allocated Pensions on Jan 1, 2015, his Allocated Pension is ‘grandfathered’ under the old, ‘deductible amount’ formula.
Alan and Jenny had been told and were under the impression they were better off, for Centrelink purposes, under the old rules than they would otherwise have been under the new rules.
However, on investigation, we found that over the years Alan had made several lump sum withdrawals (known as partial commutations) from his Allocated Pension for larger one-off expenses such as replacing a car, going on an extended holiday, and some home renovations. These lump sum withdrawals were made on top of his regular monthly allocated pension drawings.
Alan and Jenny were not aware that those lump sum withdrawals had the effect of reducing the Centrelink Incomes test efficiency of his Allocated Pension.
To counteract the effect the withdrawals were making on the Incomes test calculations, Alan would have been better off fully commuting and restarting his Allocated Pension before Jan 1, 2015. This would have resulted in a new, larger, deductible amount and an increase to their part Age Pension.
Whilst this was a missed opportunity, all is not lost. If Alan commutes and restarts his Allocated Pension now, Centrelink will use the new post 1 Jan 2015 deeming rules to assess the amount of income they will use in determining their Age Pension eligibility.
The result for them, based on their circumstances, is that they will in fact be better off under the new deeming rules than the old deductible amount rules.
Many people are better off under the old rules pre 1 Jan 2015. However not everyone is, and you shouldn’t simply make that assumption without getting advice on your personal circumstances.
Alan and Jenny will soon be receiving a welcome increase to their part Age Pension.