How does a super pension affect the government one?

Hi Nicole,

I love your column in Money - always good advice. Could I have your advice please? I am 65 and recently started receiving a Public Sector Superannuation Scheme indexed pension. My total benefit is about $150,000, and I receive an annual pension of about $15,000. How does this pension affect the income test and asset test for the age pension?

1. In regard to the assets test, is the $150,000 counted or not counted?

2. In regard to the income test, is there deemed income on the $150,000?

3. In regard to the income test, is the $15,000 counted as income?

Thanks and regards, Bill

Many thanks for the compliment and questions - they're ones to which I'm sure many readers want the answers.

So here we go:

1. The $150,000 is not counted as an asset. This is because such defined benefit pensions are non-commutable - in other words, you can't actually get at the money.

2. Your pension is not deemed income but treated as actual income. However ???

3. What counts towards the income test depends on whether the super plan is a funded scheme or an unfunded scheme. As a general rule, most state-based public sector schemes are funded but typically the federal government scheme is unfunded. The surest way to tell is simply to ask your fund.

The relevance of that last bit is that if your super plan is unfunded, the full amount is counted towards the incomes test. On the other hand, if the super plan is a funded plan, there might be a small reduction in the incomes test assessment. So while you're on the phone to your super fund, also ask if you have a "deductible amount" as part of your pension.

A final point: this super pension income is not part of what counts towards the pension bonus scheme - where personally earned income up to $250 a fortnight does not count towards the income test. This is an incentive that has been built in to the system to encourage people to work, so not relevant to this portion of your income (but perhaps you also work???).

Moran Howlett Financial Planning's Paul Moran, who helped me fathom all of this, adds that if you happen in addition to have an account-based (allocated) pension that was started prior to January 1, 2015, "hang onto it at all costs and don't change it". This was prior to deeming rules being extended to cover these pensions so your grandfathered income is likely to be exempt from the incomes test.

Bill, a guaranteed lifetime pension is a potentially lucrative - and increasingly rare - thing. So my final piece of advice is to take good care of yourself ??? to ensure you enjoy it for a long time!

Nicole Pedersen-McKinnon is a money educator and consumer advocate: themoneymentorway.com. You can write to her for help solving your money problem, or with a consumer question, at nicolehelps@fairfaxmedia.com.au.

This story How does a super pension affect the government one? first appeared on The Sydney Morning Herald.