How Your Super Affects the Age Pension: A Guide for Couples

By retirement age, your superannuation is often the largest asset you own. But how does Centrelink view this asset, and how does it affect your eligibility for the Age Pension?

Understanding these rules is one of the most important parts of retirement planning. For some couples, a simple and legitimate strategy involving their super could mean the difference between a part pension and the full pension.

This guide will break down how different types of super are assessed, walk you through a practical case study, and explain the powerful "age gap" strategy that many couples can use to boost their Centrelink entitlements.

Disclaimer: This information is for educational purposes only and is not financial advice. These strategies have risks and consequences. Please do your own research and seek professional advice before making any financial decisions.

The Golden Rule: How Super is Assessed Before and After Age 67

For Centrelink purposes, there are two main phases of super: the accumulation phase and the pension phase (which includes Transition to Retirement and account-based pensions). How these are assessed depends entirely on one thing: your age relative to the Age Pension age, which is currently 67 for everyone in Australia. The rules from Services Australia are clear:

• If you are UNDER Age Pension Age (67): Super held in an accumulation account is treated as if it doesn't exist. Centrelink does not count it under either the assets test or the income test. This is a critical rule that forms the basis of a powerful strategy for couples.
• If you are OVER Age Pension Age (67): Your super in an accumulation account becomes fully assessable under both the assets and income tests.
• Pension Phase Accounts (TTR & Account-Based Pensions): These are always fully assessable by Centrelink, regardless of your age.

The Assets Test vs. The Income Test (Deeming)

Once your super is assessable, Centrelink looks at it under two different tests.

• The Assets Test: The total balance of your assessable super accounts is simply added to your other assessable assets (like cars, home contents, and other investments).
• The Income Test: Centrelink doesn't look at your actual pension withdrawals or investment earnings. Instead, it applies "deeming rules," where it assumes your financial assets earn a set rate of income. These deemed earnings are then included in the income test.

Centrelink calculates your entitlement under both tests, and your final payment is based on the test that results in the lower pension amount.

Case Study: How John and Jenny Doubled Their Pension

Let's look at a retired couple, John (62) and Jenny (67), who own their home. Their only assets are their super, home contents, and a car.

The Initial Situation

• John (62): Has $200,000 in a super accumulation account and $300,000 in a Transition to Retirement (TTR) pension.
• Jenny (67): Has $500,000 in an account-based pension.

Step 1: The Initial Pension Calculation

Assets Test:

• John's $200,000 accumulation account is not counted because he is under 67.
• Their total assessable assets (including his TTR, her pension, and their car/contents) come to $850,000.
• This is well over the assets test threshold, so under this test, Jenny's pension entitlement is just $292.60 per fortnight.

Income Test:

• Their total assessable financial assets are $800,000 (his TTR + her pension).
• Under the deeming rules, this generates a significant amount of assessable income.
• Under this test, Jenny's pension entitlement is $802.48 per fortnight.

Since the assets test results in a lower payment, Jenny is "asset tested," and her final Age Pension payment is just $292.60 per fortnight.

Step 2: The First Strategy – Consolidating to the Younger Spouse

Remember the golden rule: super in an accumulation account for someone under 67 is not assessed. John is 62.

John decides to roll his $300,000 TTR pension back into his super accumulation account.

• This simple move reduces their assessable financial assets by $300,000.
• Their total assessable assets drop to $550,000.
• While still over the threshold, the excess is much smaller. Jenny's pension entitlement under the assets test jumps from $292.60 to $742.60 per fortnight.

Step 3: The Second Strategy – A Spousal Transfer

To boost the pension even further, Jenny withdraws $80,000 from her account-based pension and gives it to John to contribute to his super accumulation account.

• This "hides" another $80,000 from Centrelink, as it's now in John's non-assessable account.
• Their total assessable assets drop further, right down to the lower assets test threshold.

The Result: Jenny now qualifies for the full Age Pension of $866.10 per fortnight.

This is a powerful strategy for couples where only one partner is over Age Pension age. Of course, when John turns 67, his accumulation account will become assessable, and they will need to explore other strategies.

5 Critical Questions to Ask Before Using This Strategy

Before you rush to implement this, it's vital to consider the potential downsides.

1. Do you need access to the money? Moving money into a super accumulation account can mean those funds become inaccessible until the account holder meets a condition of release. Will locking those funds away compromise your financial stability or flexibility?
2. What are the tax implications? Earnings inside an accumulation account are taxed at 15%. In contrast, earnings inside an account-based pension are tax-free. You need to weigh the potential tax impact against the benefits of a higher pension.
3. What are the transaction costs? Moving money often involves selling investments, which can incur brokerage fees. Do the benefits outweigh these costs?
4. Do you have room in your contribution caps? The ability to contribute to super isn't unlimited. Make sure you understand your contribution caps and total super balance limits to avoid penalties.
5. Are you comfortable transferring money to a spouse? This strategy requires a high level of trust and a stable relationship. It's important to consider your personal circumstances and any potential relationship dynamics.