Retirees drawing a pension from their SMSF should be aware of changes to the Centrelink incomes means test as new thresholds may reduce their age pension entitlement, an SMSF specialist has warned.
SuperCentral superannuation special counsel Michael Hallinan said the ‘free amount’ of income that can be received each fortnight without impacting an entitlement to the age pension under the test has increased for the 2025 financial year from $204 to $212 for a single person and from $360 to $372 for a couple.
These thresholds have increased because while the government locked the low and high deeming rates at 0.25 per cent and 2.25 per cent respectively, it did allow the normal indexation of the deeming thresholds to apply for the 2025 financial year.
This has resulted in an increase of the annual threshold from $60,400 to $62,600 for single pensioners and $100,200 to $103,800 for couples.
Hallinan noted any amount in excess of these fortnightly thresholds will reduce the age pension by 50 cents for each $1 above the income free area and gave the example of a single self-funded retiree whose super pension was reduced as a result of the change.
“John’s only income-earning asset is his SMSF pension balance of $400,000, as at 1 July 2024. The SMSF pension is a financial asset so the deeming test will apply. Under the deeming test, John will be assessed as receiving $298 per fortnight,” he said.
He outlined this figure resulted from the $400,000 pension balance being treated as producing $156.50 on the first $62,600, that is, at 0.25 per cent, and $7591.50 on the balance, that is, $337,400 at 2.25 per cent. The total of $7748.00 from the deeming rates is converted to a fortnightly rate of $298 after dividing $7748 by 26.
Applying the new free amount means the first $212 has no impact on his age pension, with the balance above the income free area at $86.
“The first $212 of the $298 is within the income free area and so has no effect on John’s age pension entitlement. However, the balance – being $86 – will reduce his age pension entitlement by $43, given the reduction rate of 50 cents in the dollar,” Hallinan said.
“His pension entitlement per fortnight will be reduced from $1116.30, which is the maximum pension entitlement before reduction due to means tests, by $43.
“Whether John draws down $20,000 or $35,000 from his pension is irrelevant. Entitlement to the age pension is based on the deemed income from the pension account and not the amount of the pension payment.”
