Older Australians could increase their Centrelink Age Pension payments by using a retirement income strategy that reduces the value of assets assessed by Services Australia. The approach involves purchasing a qualifying lifetime annuity, which can provide regular income while allowing some retirees to receive a higher government pension.
Financial advisers say the strategy is attracting growing interest among Australians approaching retirement, particularly those with substantial superannuation savings who want greater certainty about their future income.
Centrelink 60% Rule
One of the main advantages of certain lifetime annuities is their favourable treatment under Centrelink’s assets test.
Under the rules applying to eligible lifetime income streams, only 60 per cent of the purchase price is generally assessed as an asset initially.
For example, a retiree who purchases a qualifying lifetime annuity for $100,000 may have just $60,000 counted towards the Age Pension assets test.
The assessable proportion generally falls to 30 per cent after the later of the person’s 84th birthday or the fifth anniversary of the income stream’s commencement.
This treatment can make a difference for retirees whose assets are close to the thresholds determining their pension entitlement.
However, the concession does not apply automatically to every annuity or retirement income product.
Pension Boost
Melbourne financial adviser Billy Norman has explained that purchasing a lifetime annuity can reduce the assets Centrelink counts when calculating Age Pension eligibility.
Services Australia uses both an income test and an assets test to determine how much Age Pension a person can receive.
The test producing the lower pension entitlement determines the payment amount.
For retirees whose payments are reduced primarily by the assets test, purchasing a qualifying annuity may improve their entitlement.
Consider a homeowner with $1 million in assessable assets who allocates $200,000 to an eligible lifetime annuity.
If the annuity receives the 60 per cent assets-test treatment, Centrelink would initially assess $120,000 of that investment.
This could reduce total assessable assets by approximately $80,000, assuming the money previously counted at its full value.
The resulting pension increase would depend on the retiree’s circumstances and the income test.
Asset Limits
Age Pension eligibility depends on factors including relationship status, homeownership, income and assessable assets.
The figures cited in the original reporting placed the upper assets-test limits for part-pension eligibility at approximately:
- $745,750 for single homeowners
- $1,121,000 for homeowner couples
These figures are from the supplied report and should not be treated as verified current thresholds. Services Australia adjusts pension limits periodically.
The principal residence is generally excluded from the Age Pension assets test.
Other financial assets, including superannuation investments once assessable, can affect entitlement.
Retirees considering an annuity should check the latest Services Australia thresholds before making any financial commitment.
Lifetime Income
A lifetime annuity is a financial product designed to provide regular income for the remainder of a person’s life.
The purchaser generally exchanges a lump sum for payments made according to the product’s terms.
Unlike ordinary savings accounts, qualifying lifetime annuities can offer income certainty regardless of how long the recipient lives.
This may appeal to retirees concerned about exhausting their savings during retirement.
Depending on the product, payments may be fixed, increase over time or include additional features designed to manage inflation and beneficiary protection.
However, annuities can involve restrictions on withdrawals and access to capital.
Their suitability depends on the retiree’s broader financial position and spending needs.
Growing Demand
Australia’s ageing population is contributing to increased demand for retirement income products.
More than 2.5 million Australians are expected to retire over the coming decade, according to demographic estimates cited in the reporting.
Superannuation providers and financial institutions are responding by developing products that help members convert retirement savings into regular income.
Annuity provider Challenger has reported substantial growth in demand.
Its latest reported results showed domestic annuity sales increasing 17 per cent to $4.9 billion.
Fixed-term annuity sales increased by 19 per cent, while lifetime annuity sales grew by 13 per cent.
The figures indicate growing interest in products offering predictable retirement income.
Investment Balance
Despite the potential pension advantages, financial advisers generally caution against placing all retirement savings into an annuity.
Norman indicated that he typically limits annuity allocations to approximately 20 to 25 per cent of a client’s assets.
This approach leaves most retirement wealth available through more flexible investments.
For example, someone with $1 million in retirement assets might allocate $200,000 to $250,000 to an annuity while retaining other investments for emergencies, unexpected expenses and discretionary spending.
The appropriate allocation varies considerably between individuals.
A larger annuity investment could provide more guaranteed income but may reduce access to funds when circumstances change.
Inheritance Concerns
One concern for retirees considering lifetime annuities is what happens to their investment after death.
Traditional annuity arrangements may provide limited remaining value to beneficiaries, depending on the contract and how long payments have been received.
However, newer products can include death benefits or guaranteed payment periods designed to provide some protection for beneficiaries.
Challenger’s Head of Retirement Income Research, Aaron Minney, has highlighted how product development has addressed concerns about leaving money to family members.
Some annuities may return a specified amount if the purchaser dies relatively soon after the investment begins.
Others may provide little or no remaining death benefit after many years of payments.
The exact outcome depends on the product’s conditions.
Before Investing
Retirees should consider more than the potential Centrelink payment increase before purchasing an annuity.
Important factors include the income offered, inflation protection, access to capital, death benefits, fees and the financial strength of the provider.
Centrelink also assesses income from lifetime annuities, meaning a lower assessable asset value does not guarantee a higher Age Pension payment.
The overall benefit must be calculated using both pension means tests.
Independent financial advice can help retirees compare annuities with account-based pensions and other retirement income options.
For Australians approaching retirement with substantial savings, the Centrelink 60 per cent assets-test rule may provide an opportunity to improve pension eligibility while securing a reliable income stream.
However, the greatest benefit comes from choosing a retirement strategy that balances pension payments, financial flexibility and long-term security.
