Age Pensions and Retirement Living Costs
Who is eligible for the Pension?
The Commonwealth provides a basic income to Australian residents who are considered unable to work full time on account of age or disability. The Age Pension for men aged 65 years and women aged 64 years and 6 months, and its financial equivalent: the Disability Support Pension for younger incapacitated people, allows for a basic frugal lifestyle for home owners.
An additional means tested amount of Rent Assistance is available to pensioners who live in rental accommodation. Public housing tenants usually have their rent capped as a percentage of income. But spending one-quarter of your gross income on rent leaves little for your discretionary expenditure. Pensioners who must rent a home have even less financial flexibility than home owners.
How much is the Age Pension?
The full rate of Age Pension for a single person increased to $755.50 per fortnight effective from 20 March 2012. The maximum fortnightly payment consists of $695.30 of Age Pension plus $60.20 of Pension Supplement.
The full rate of Age Pension for couples living together is $569.50 per fortnight each. The maximum fortnightly payment consists of $524.10 of Age Pension plus $45.40 of Pension Supplement. Therefore if both members of the couple are eligible for the Age Pension then the maximum they could receive as a couple living together is $1,139 per fortnight.
If one of a couple are living in aged care, then the maximum Age Pension payable to each member of the couple is the full Single Rate currently $755.50 per fortnight.
Why the different rates for singles and couples?
The lower rate per person for couples living together is an acknowledgement that some costs such as food and medicine are per person but others such as home heating are for the household. If one member of a couple goes into aged care, the one staying home is not going to heat the lounge room and feed the cat only on alternate days because only one of the couple now lives at home.
What standard of living does the Age Pension provide?
ASFA, the Association of Superannuation Funds of Australia, asked real retirees how much they actually spent for an active retirement. Their results are presented as the ASFA Retirement Standard for a Modest Lifestyle or a Comfortable Lifestyle. You can read the detail of the ASFA Retirement Standard at http://www.superannuation.asn.au/resources/retirement-standard.
In the last quarter of 2011, the average annual cost of a Modest Lifestyle was $21,930, that is, $841 per fortnight for a single person who owned their own home. The Modest Lifestyle still only allows for fairly basic items.
A Comfortable Lifestyle cost $1,550 per fortnight for a single homeowner in late 2011. The Comfortable Lifestyle included top-rate health insurance, regular travel within Australia and occasionally overseas, together with more leisure items and a better motor vehicle.
For couple living together in their own home, the average annual cost of a Modest Lifestyle was $31,675 that is, $1,215 per fortnight in the last quarter of 2011. A Comfortable Lifestyle required $55,249 per year or $2,120 per fortnight for a couple living in their own home.
In summary, the full Age Pension on its own would finance a frugal lifestyle only. Without some savings, financial stress and distress could easily arise from major unplanned expenses. Replacing the refrigerator could cause distress to pensioners without savings put aside for a rainy day.
Could a Full Rate Single Age Pensioner finance a Modest Lifestyle?
The average cost of a Modest Lifestyle in late 2011 was $841 per fortnight for a single person who owned their own home. On 20 March 2012 the full Age Pension increased to a total fortnightly payment of $755.50 for a Single person.
Thus for a single homeowner there is a gap of about $90 per fortnight between the full Age Pension and the cost of the Modest Lifestyle.
Centrelink rules allow for $150 per fortnight of other income before the Income Test impacts.
Thus a single Age Pensioner with little savings but a superannuation pension of $90 per fortnight could expect to afford the Modest Lifestyle. Her income would be the full Single Age Pension plus her superannuation pension.
If a single Age Pensioner had $100,000 in a bank account and no other income or substantial assets, then she could receive the full Age Pension. At current deeming rates, her deemed financial income would be $147.35 per fortnight. In practice, she might be earning a little more interest than the deeming rates.
Yes, a single Age Pensioner could have the full rate of Age Pension plus sufficient other income to finance a Modest Lifestyle as a homeowner.
But could a couple receiving the full rate Age Pension finance a Modest Lifestyle?
Couples who are both able to live at home receive a maximum total fortnightly payment of $1,139 from Centrelink as homeowners. For couple living together in their own home, the average annual cost of a Modest Lifestyle was $31,675 that is, $1215 per fortnight in the last quarter of 2011. Hence a gap of at about $80 per fortnight between the combined Age Pensions and the cost of a Modest Lifestyle.
This income gap could be covered by a superannuation pension or the interest on a joint pensioner bank account of $70,000.
The per person gap between the cost of a Modest Lifestyle and the full Age Pensions appears to be narrower for a couple than for a single person. Some additional items for the Modest Lifestyle over the frugal are shared by the couple, such as car running costs, others such as health insurance are on a per person basis.
A couple at Centrelink are allowed $264 of fortnightly income before the Income Test starts to bite.
Yes, an Age Pensioner couple could have the full rate of Age Pension plus sufficient other income to finance a Modest Lifestyle as a homeowner couple living together.
Remember that the Modest Lifestyle is better than the Age Pension alone, but still only able to afford fairly basic activities.
If you would like further confidential, independent and professional advice about Centrelink, lifestyle or financial issues please contact Christine Hopper (03) 9808 0338.