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This topic provides information on the following:
Part of the Budget 2009-10 (12 May 2009) the Secure and Sustainable Pension Reform Package includes measures to better target pension payments to those who most need support.
From 20 September 2009, the higher income test threshold for pensioners with dependent children will be abolished to align the pension income test with the allowance and family payments income tests.
From 20 September 2009, the rate at which extra income above the threshold affects the pension will change from 40 cents to 50 cents in the dollar for singles. For couples, the rate will change from 20 cents to 25 cents in the dollar for each member of a couple.
A transitional safety net will apply for the existing pensioners who would otherwise have their payments reduced by the new income test rules. These pensioners will continue to receive their existing payment based on the current 40 cent withdrawal rate and the additional free area for dependent children, until they are better off under the new rules, including the 50 cent withdrawal rate.
PPS recipients will remain receiving their payment based on the current 40 cent withdrawal rate and the additional free area for dependent children. Work Bonus will not apply to PPS recipients.
Policy reference: SS Guide 5.1.8.40 Pension Reform - Transitional Arrangements
The ordinary income free area under the pension income test and the PPS income test includes an additional free area for EACH of a recipient's dependent children (1.1.D.70). This topic covers:
Policy reference: SS Guide 4.2.1.10 Pensions Income Test & Limits
A child of a person must first meet the definition of a dependent child, that includes requirements such as residency and other requirements as defined in the SSAct section 5. In addition, for the purposes of the additional free area, a dependent child attracts the additional free area if they are a child under 18 receiving YA, but not if they are a prescribed student child aged 18 or over for whom CA is not payable.
Act reference: SSAct section 5 Family relationships definitions-children
|
Amount |
Pre 1 July 2000 |
On or After 1 July 2000 |
|
Per fortnight (pf) |
$24.00 |
$24.60 |
|
Per year |
$624.00 |
$639.60 |
Policy reference: SS Guide 1.1.D.70 Dependent child
In general, the annual amount of payments received by a person for or in respect of a dependent child reduces the $24.60 additional free area.
Example 1: The additional free area of $24.60 pf ($639.60 per year) reduces IF a person is receiving a foster care allowance payment for a dependent child.
Example 2: The additional free area of $24.60 pf ($639.60 per year) reduces IF a person is receiving superannuation or compensation (1.1.C.240) for a dependent child.
Exception: Some payments are exempt from this rule, as discussed below.
The following payments do NOT reduce a person's additional free area entitlement of $24.60 pf ($639.60 per year):
Explanation: These payments are exempt.
Act reference: SSAct section 10 Maintenance income definitions, section 23(1)-'Aboriginal study assistance scheme'
When calculating the additional free area deductions, each of a person's dependent children is considered separately.
Explanation: Excess income for one child CANNOT be offset against the income deduction of another child.
The following table shows an example of calculating the deduction for a person with 3 children.
|
|
Child 1 |
Child 2 |
Child 3 |
|
Income received for or in respect of a dependent child |
$30.60 pf ($795.60 per year) |
$8.60 pf ($223.60 per year) |
$0 |
|
Additional free area deduction |
$24.60 pf for each child ($639.60 per year for each child) | ||
|
Amount exceeding additional free area |
$6 pf ($156 per year) |
$0 |
$0 |
|
Allowable child deduction |
$0 pf Explanation: Income received exceeds the additional free area. |
$16 pf ($416 per year) |
down
$24.60 pf ($639.60 per year) |
Act reference: SSAct section 5 Family relationships definitions-children, section 1064-E4 How to calculate a person's ordinary income free area, section 1064-E5 No additional free area for certain prescribed student children, section 1064-E6 Reduction of additional free area for dependent children, section 1064-E12 Dependent child, section 1066-E4 How to calculate a person's ordinary income free area, section 1066-E5 Reduction of additional free area for dependent or maintained children, section 1066-E10 Dependent child, section 1066A-F3 How to calculate a person's ordinary income free area, section 1066A-F4 No additional free area for certain prescribed student children, section 1066A-F5 Reduction of additional free area for dependent children, section 1066A-F11 Dependent child, section 1068A-E14 How to calculate a person's ordinary income free area, section 1068A-E15 No additional free area for certain prescribed student children, section 1068A-E16 Reduction of additional free area for dependent children, section 1068A-E21 Dependent child
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Last reviewed: 21 September 2009
