
Will the Age Pension benefit be paid while your clients are overseas?
Les and Lynne are both aged 67; they retired one year ago and have been receiving a portion of their Age Pension from Centrelink to supplement their income. Les and Lyn are enjoying retirement! In January 2020, they will head overseas for about 12 months to travel the world. While they’re away, they will rent out their Melbourne home. Les and Lynne are concerned their Age Pension will cease or reduce while they are travelling.
Les and Lynne’s situation is not uncommon. This article will explore some of the implications of the Age Pension for pensioners while they are travelling outside Australia for an extended period.
Basic eligibility for Age Pension
Generally, to be eligible for Age Pension, a person must have reached Age Pension age (currently 66), be an Australian resident and be physically present in Australia when they submit their claim. In most cases, the pensioner must have been an Australian resident for at least 10 years, including a minimum of five continuous years.
The rate of Age Pension payable is subject to an assets and income test. More information on the eligibility rules can be found on the Department of Human Services website.
Will the rate of Age Pension change upon leaving Australia for an extended holiday?
Irrespective of any change to a pensioner’s assessable assets and income, their Age Pension benefits may still reduce while they are abroad.
A pensioner is eligible to receive the full amount of their Age Pension while travelling overseas for up to 26 weeks. However, once a pensioner is overseas for more than 26 weeks, the rate of their pension payable is dependent on the person’s Australian Working Life Residence (AWLR) in Australia, between the ages of 16 to 66 (Age Pension age).
For those pensioners with at least 35 years of AWLR, there shouldn’t be a change to their rate of Age Pension while they are overseas. This requirement increased from 25 years at 1 July 2014 and pensioners living overseas on 1 July 2014 are grandfathered under the previous rules whilst they remain abroad.
However, if a pensioner has less than 35 years AWLR, their Age Pension will generally reduce proportionately after 26 weeks, while overseas. For example, a pensioner with 10 years AWLR would get roughly 10/35th of their usual Age Pension rate.
Irrespective of a pensioner’s AWLR and their rate of Age Pension, after six weeks travelling overseas, the energy supplement will cease and pension supplement (which covers telephone, mobility and utilities) will drop to the basic amount until they return to Australia.
Note there is proposed legislation which, if passed, will stop the payment of pension supplement basic amount after six weeks overseas and immediately for permanent departures.
Finally, the pensioner concession card will be cancelled after six weeks abroad and will be reinstated upon returning to Australia for all travelling pensioners.
Will the assessable assets and income for Age Pension change?
If a pensioner temporarily leaves their home, they can continue to treat their property as their main residence for up to 12 months. This means that the property maintains its assets test exemption and the individuals continue to be defined as homeowners for Centrelink purposes. This exemption applies even when the pensioner intends to be abroad for more than 12 months, provided the time abroad isn’t intended to be permanent.
The situation would be different if the pensioner didn’t intend to return to their home – for example, if they were planning to live overseas permanently. In this instance, their home would be an assessable asset and the higher non-homeowner allowable assets threshold would apply.
Rental income would be assessable under the income test immediately. Usually, Centrelink will assess the net rent (after expenses) as per the individuals’ tax return, but with a few exceptions of costs that are deductible for tax, but not Centrelink, purposes. These include:
- capital depreciation
- special building write off
- costs to build
- costs of borrowing money such as loan establishment fees.
Returning to Les and Lynne, if their holiday were to extend beyond 12 months, their Melbourne property would no longer be regarded as their principal home for Centrelink purposes. They will instead be assessed as non- homeowners and the market value of their home will become an assessable asset.
Will the Age Pension benefit be paid in the same manner while overseas?
Pensioners travelling for less than 12 months will be paid every two weeks (as normal) into their Australian bank account. A pensioner travelling for more than 12 months, or living aboard, will be paid every four weeks either into an Australian or overseas bank account. Payments into an overseas account will be converted using the current exchange rate into either the local currency or into US dollars.
Do pensioners have to let Centrelink know they are going overseas?
Pensioners should advise Centrelink of when they will be travelling overseas. Setting up online access to Centrelink via MyGov, allows pensioners to update their personal details. They can also use this service to advise Centrelink when they will be travelling overseas, as well as any other changes to their personal circumstances.
What about Age Pensioners who leave Australia to live in another country?
When a pensioner leaves Australia permanently to live in another country, their pension will be paid at an outside Australia rate. This means that—similar to those travelling for more than 26 weeks—their pension rate will reduce proportionately based on their years of AWLR, if it is less than 35 years.
Upon departing Australia permanently, the pension supplement will drop to the basic amount, energy supplement will cease, and the pensioner concession card will be cancelled.
The outcome may be different if the pensioner is moving to a country with whom Australia has an international social security agreement with; this is discussed further below.
Former residents returning to live in Australia
There are different rules for former Australian residents living overseas who return to Australia and apply for an Age Pension. A former resident returning to Australia can only claim Age Pension if they have a clear intention to return to Australia permanently. If successful in their claim, and granted the Age Pension, they won’t be paid that benefit outside Australia if they leave within 24 months of returning to Australia.
The purpose of this rule is to stop people from returning to Australia only to access their Age Pension and then leave overseas shortly after, taking the benefit with them.
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Receiving Age Pension under a social security agreement with another country
Australia has social security agreements with approximately 30 countries. All these agreements are based on the concept of reciprocal and shared responsibility. Under such agreements, Australia equates social insurance periods/residence in those countries, with periods of Australian residence, in order to meet the minimum qualifying periods for Australian pensions (i.e. 10 years residency, with minimum five years continuous residency).
The other countries generally count periods of AWLR as periods of social insurance in order to meet their minimum qualifying periods for payment. Usually, each country will pay a part pension to a person who has lived in both countries. In this way, responsibility for social security is shared between the countries where a person has lived during their working years.
Australia’s social security system is different to most other developed countries. Pensions are paid by the Australian Government, rather than contributions paid by individuals and employers into a social insurance fund. For this reason, Australian pensions are income and asset tested whereas overseas pensions may not be.
If a person is living outside Australia, their Age Pension will generally be paid at the outside Australia rate (i.e. reduced proportionately if they have less than 35 years AWLR).
Claims for both Australian and foreign pensions can be lodged in either country for both pensions.
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