Making the most of changes in social security payments

If you are of retirement age, there is a good chance you will have seen a substantial increase in your age pension payment in recent weeks. This is especially the case if you are single and receive the Centrelink age pension, disability support pension, wife pension, carer payment, bereavement allowance, widow B pension, a DVA service pension or a war widow/ers pension. The changes, that came into force on September 20, 2009, are part of the government’s Secure and Sustainable Pension Reform, which is designed to deliver a stronger and fairer pension system.

Changes in social security payments

Since 20 September 2009, the single maximum basic rate of pension has increased by $60 per fortnight. This increase is in addition to the regular indexation of pensions which also took effect on this date.

Also from 20 September, various payments ‘supplementary’ to the base rate of pension i.e. (pharmaceutical allowance, GST supplement, utilities allowance and telephone allowance) have now been rolled into a new pension supplement.

Previously for a single person, the allowances and GST supplement listed above were the equivalent of $50.77 per fortnight.

The new pension supplement will include this amount, as well as an increase of:

• $5.00 per fortnight for a single pensioner
• $20.30 per fortnight combined for a couple.

Initially, the new pension supplement will be paid in conjunction with the base pension rate on a fortnightly basis.

Another reform which commenced from 20 September 2009 onwards is introduction of a work bonus. Under the new work bonus, half of the first $500 of fortnightly employment will be disregarded from the income test for pensioners over Age Pension age. This means the maximum that can be disregarded is $250 per fortnight and is in addition to the normal income free area.

Transitional arrangements have been put in place to top up the income of those pensioners who might find themselves worse off as a result of these changes. That means that to a greater or lesser extent, everyone will benefit from these reforms.

It is important to contact your financial planner to see whether these changes apply to you, and how these changes might affect your financial situation. When faced with an increase in your income, it might be tempting to spend it all on living expenses, but it is important to keep a long-term view in mind. A financial planner can help you to make the most of the funds you have available so that you can have the lifestyle you want in retirement.

Paying off debt

If you have any debt, particularly on your credit cards, the interest on these loans can become crippling when left unpaid over a few months. That’s why it can be wise to use any spare cash available to pay off such commitments before spending it on anything else.

Making your savings last longer

If you find you regularly tap into your savings to top up your weekly budget, this additional money from the social security changes could help you to reduce your draw downs from your other investments. This could be from your bank accounts, account-based pensions or investment schemes and shares. By doing so, you will have a higher balance on those investments than you would otherwise have, which might also allow you to benefit from interest and dividend payments.

Saving for the future

It is extremely important to keep a long term view, particularly when it comes to your future health care requirements. The costs of nursing homes and hospitals are increasing, as are the costs associated with home care services. If you have not already done so, it is very important to start saving for these purposes, either by putting your spare capital into a high interest bank account or an investment fund.

Topping up your income

Some people might also wish to take advantage of the new work bonus to top up their age pension payments. Because only half of the first $500 of employment income earned per fortnight will be assessed under the income test, you could receive this additional income without it affecting your pension. if you are interested in exploring part-time employment, it might be worthwhile contacting your financial planner so you can find out how any additional income might affect your pension payments.

What you need to know
Information current as at November 2009. Any advice is this article is provided AMP Financial Planning Pty Limited, ABN 89 051 208 327. This article contains general information only. It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances. If you decide to purchase or vary a financial product, your financial planner, AMP Financial Planning and other companies within the AMP Group will receive fees and other benefits, which will be a percentage of either the premium you pay or the value of your investment. You can ask us for further details about this.