Unit08 Social Security

Unit08 Social Security

Chapter 18

Learning Outcomes

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Describe how the social security system operates in Australia.

Explain the different types of social security payments.

Determine the amount of pension receivable with the assets test and income tests.

Discuss strategies to increase age pension entitlements.

Social Security

Programs such as those operating in Australia and other countries belonging to the Organisation for Economic Co-Operation and Development (OECD) operate on the principle of pay-as-you-go and provide

safety net retirement,

Unemployment, and

disability payments

through taxation collected from the current working population.

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Criteria of Eligibility

Before becoming eligible for social security payments, a person must satisfy various

criteria.

Qualifying criteria vary from one pension or benefit type to another but typically require

applicants to meet certain age and residency

requirements.

Most social security payments are means tested in order to provide benefits to people

most in need.

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Residence Requirements

An Australian resident on the day you lodge your claim.

Be physically present in Australia on the day you lodge your claim.

Have been an Australian resident for a continuous period of at least 10 years, or for

a number of periods that total more than ten

years, with one of the periods being at least

five years.

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Administration

Centrelink established in 1997, is charged with the responsibility of assessing and

making social security payments and

providing other services on behalf of the

Commonwealth Government.

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Types of Social Security Payments

Age Pension

A safety net income for people who are unable to fund their retirement adequately.

The Age Pension represents approximately 25 per cent of average weekly earnings.

Disability Support Pension

For people with disabilities, illness or injury preventing them from working full-time.

Carer Allowance

Income supplement for someone who provides daily care for a person with an illness or a disability.

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Austudy

For people undertaking qualifying study who are 25 years or over.

Youth Allowance

For full-time students aged 1624, or those temporarily incapacitated for study.

Newstart Allowance

For unemployed people aged 21 or more but under the eligible age for the Age Pension. People in receipt of the allowance must be willing to search for and accept suitable paid work.

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Widow Allowance

an allowance paid to women 50 years of age or over who have no recent work experience and are

widowed, divorced or separated.

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Age Pension

The Age Pension was introduced in Australia in 1909 to meet the basic living expenses of

older people.

Life expectancy was 55.

Qualifying age was 65.

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NSW Life Expectancy

2002 2004 2006 2008 2010 2012

Male

0 77.3 78 78.6 79.2 79.6 79.9

25 53.4 54 54.6 55.1 55.4 55.7

45 34.6 35 35.6 36.1 36.3 36.6

65 17.3 17.7 18.1 18.6 18.9 19.1

85 5.6 5.7 5.9 5.9 6 6.1

Female

0 82.6 83.3 83.4 83.9 84.1 84.2

25 58.3 59 59.1 59.5 59.7 59.8

45 38.9 39.5 39.6 40 40.2 40.3

65 20.8 21.2 21.4 21.7 21.9 22

85 6.8 6.9 7 7.1 7.2 7.2

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Qualifying Age

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2014 Pension Rates

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Means Testing

Two tests are used to determine the Age Pension - the Assets Test and the Income Test.

Each test is applied and the one which produces the lower pension entitlement is the applicable test.

When advising a client, it is important to establish which is the relevant test, as this may have an important bearing on the type of investment strategies recommended to the pensioner.

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Assets Subject to the Assets Test

Financial investments, including cash, bank accounts, listed shares and securities,

managed investments and loans to family

members.

Personal items and house contents such as clothing, hobby collections, paintings, art and

electrical appliances (but not fixtures such as

stoves).

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motor vehicles, caravans and motor bikes.

real estate, including holiday homes.

businesses and farms.

the surrender value of life insurance policies.

gifts above $10,000 per income year.

Superannuation investments.

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Assets Test Thresholds

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About $140k More for Non-homeowner

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Income Test

Application of income test thresholds to assessable income for social security

purposes which includes

Gross income from wages and salaries

Income from carrying on a business

Net rental income and total losses from rental property

Long-term income derived from income-stream products

Deemed income earned from financial assets

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Special Deeming treatment for estimating income from financial assets

Financial investment

Bank accounts, shares, managed funds and short-term income streams

Deprived assets

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Income Test Thresholds

Strategies to increase age pension

entitlement

Move money to spouses super

Assets held in super are exempt from income and assets tests if a person is under pension age.

Gifting

Pensioners are able to gift up to $10,000 a year, but no more than $30,000 over five years, to stay

under the assets test limit.

Prepay funeral costs

Funeral bonds up to $11,750 as of July 2013 and total prepaid funeral costs are exempt from the

asset and income tests.

Disability Support Pension Eligibility

are permanently blind or have been assessed as having a physical, intellectual,

or psychiatric impairment of at least 20 points

under the impairment tables and

are unable to work or to be retained to work 15 hours or more per week at or above the

relevant minimum wage within the next 2

years because of your impairment and

meet the income and assets tests for your situation.