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Millionaire Pensioners

Australian Age Pensions had just been adjusted as occurs twice a year at 20 March and 20 September. Entitlement is based on an Income and an Assets test. The latest Asset Test figures show millionaires can get some (but not much) age pension, whether home owners or not home owners. The new maximum assets where pension entitlements cease are now $1.02 million for a couple who are homeowners and $1.15 million for a couple not owning a home.

The full age pension is now $29,354 pa for a couple and $19,469 pa for a single person. This is hardly “millionaire” income but it’s not bad. A couple could also still earn up to $13,000pa from regular employment income and $3,900pa from investments and still receive full age pension – that’s a total income of $46,254pa from age pension and other income. To buy an indexed lifetime annuity at this level would require a lump sum of over $800,000.

Pensions are now indexed by a very complicated formula. The process uses a combination of three benchmarks - the CPI, a new Pensioner and Beneficiary Living Cost Index (PBLCI) and 41.76% of Male Total Average Weekly Earnings. This is all a result of “grandfathering” the last 5 years bright ideas from the politicians on keeping pensioners happy.

However the indexation process has the risk of racheting up pensions beyond the ability of tax payers to support them. For example, if three indexes give the same average increase over 10 years but each six months there might be different variations in each, the best of 3 indexes treatment each six months could lead to increases greater than any of the 3 indexes. Since the new process started in 2009, age pensions are up 11.4% while the other 3 indexes are up 6.8%, 8.5% and 9.1%. If you wish to study this complex indexation process further, then go to http://www.fahcsia.gov.au/guides_acts/ssg/ssguide-5/ssguide-5.1/ssguide-5.1.8/ssguide-

Posted Tuesday, 27 September 2011

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