Most common Age Pension mistakes (and misunderstandings)

The process of applying for the Age Pension can be confronting and difficult. Even updating your information when your situation changes can be difficult.

Every week, the YourLifeChoices inbox receives queries and questions relating to specific details about the Age Pension process – some that are trickier than others.

When we make our way through these emails, we find mistakes and misunderstandings that have cost pensioners a considerable amount of retirement income. Addressing these key problems may prevent you from making or repeating these common pension mistakes.

Coupling up

Because the Age Pension requires the details of both the person applying and their partner, many people believe that both members of the couple need to have reached pension age to apply.

This common misconception can prove extremely costly, as the age gap in some relationships can often be significant.

When you reach Age Pension age and your partner has not, you will still be assessed under the income and assets tests as part of a couple, and will receive the couple’s rate of Age Pension, one member eligible.

However, you’ll still need to provide your partner’s identity and details, even if he or she is not old enough to apply for an Age Pension.

Not taking advantage of one person being eligible

When one member of a couple is not of pension age, the other person may actually be eligible for a higher rate of pension. This is because any superannuation held in the younger partner’s name is not counted as an asset until they reach pension age.

When the older partner becomes eligible for the pension, you may wish to transfer money to the ineligible younger partner while that money remains exempt from the Age Pension means tests.

Working it out

Another costly mistake is assuming that you have to be retired to apply for the Age Pension.

As long as your income is below the disqualifying income threshold (currently $2471 per fortnight for singles and $4018 for a couple combined), you can still be working and claim an Age Pension payment if you have reached eligibility age.

It is also possible to earn more than the disqualifying income amount if you are in paid employment thanks to the Work Bonus.

The Work Bonus means the first $300 of an individual’s earnings will not count as income under the income test. This doubles for couples where both are working – both parties may have the first $300 per fortnight of their own employment income not counted.

Pensioners over Age Pension age accrue any unused part of the $300 fortnightly Work Bonus exemption amount in a Work Bonus income bank.

A temporary increase to the Work Bonus Income Bank maximum – of $4000 to $11,800 – was made permanent in September 2023.

Leaving it too late

According to Services Australia, the median time taken to process a pension application is 49 days. But it can be a complicated process, so you don’t want to leave it until one week before you reach pension age.

Retrospective payment of the Age Pension is limited to the date when the application is accepted as complete, not on notification of ‘intent to apply’.

If you would like your application processed quickly, you can register your intent to apply for the Age Pension 13 weeks before you reach eligibility age. You don’t need all the required documentation to get the application process started. You can register your intent to apply just by providing some very basic details.

If you are already receiving an income support payment, expect a letter from Centrelink nine weeks before you reach eligibility age, inviting you to transfer to the Age Pension. You can do this online.

Ignoring requests for more information

Delays in processing an Age Pension claim can occur if Services Australia is waiting for applicants to provide more documents.

If you fill out your application online, these requests will land in your myGov inbox. It is important to pay attention to these notifications and not ignore them.

According to Services Australia, nearly 60 per cent of rejected claims are because an applicant failed to respond to requests for additional information or documentation.

Forgetting other benefits

You might not qualify for an Age Pension, but your access to retirement assistance doesn’t end there. The first thing you should do is apply for a Commonwealth Seniors Health Care Card (CSHC).

The CSHC is granted to those over Age Pension age who do not qualify for an Age Pension due to their income and assets, but whose income is below the threshold. The CSHC card entitles holders to discounts on PBS medicines and can also provide bulk-billed doctor benefits as well as concessions on electricity, gas, water, dental and public transport – depending on the rules in your state or territory.

Retiring overseas too early

The dream for some is to retire overseas. That is possible, but if you are planning on funding your retirement overseas with the Age Pension, you need to plan carefully.

You must reside in Australia when you claim the Age Pension. So, unless you are retiring to a country with a social security agreement with Australia, you need to be living in Australia at the time you apply for the pension.

Also, if you have returned to Australia after living in another country, specifically for the purposes of claiming the Age Pension, then you need to remain in Australia for two years or your pension payment will stop.

It is also important to note that you might not receive the full amount of the Age Pension if you retire overseas. Pension payments for those living overseas are paid at a proportional rate based on your Australian working life residence (AWLR). This is the number of years you have resided in Australia from age 16 to Age Pension age.

If you have lived in Australia for 35 years (420 months), then you are paid the full rate of Age Pension to which you are entitled. If, for example, you have resided in Australia for only 20 years, then you will be paid 241/420 of the Age Pension (20×12 plus an extra month).

Leaving retirement funds in the bank

Some people believe that having savings in a low- to no-interest bank account will help their Age Pension application because they won’t be earning much income from interest.

This is not how financial assets are treated by Centrelink. All your financial assets will have deeming applied, which means that they will be deemed to earn a certain rate of income, regardless of the actual return on your investments.

If you are single, the first $60,400 of your financial assets are deemed to earn 0.25 per cent and anything over that is deemed to earn 2.25 per cent.

If you are a member of a couple, the first $100,200 of your combined financial assets have a deeming rate of 0.25 per cent and anything over that is deemed to earn 2.25 per cent.

Savings work for you

This means you should be doing everything you can to make your retirement savings work for you, because if your investment return is higher than the deemed rates, the extra amount is not assessed as income.

Even if you do not receive an Age Pension, Centrelink deeming rates may still be applied to your financial investments to ascertain your income and therefore your eligibility for a Commonwealth Seniors Health Card.

Were you aware of these often misunderstood facets of the Age Pension? Have you missed out on income as a result? Why not share your experiences in the comments section below?

Also read: Age pensioners to benefit from changes outlined in government white paper

Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.