Australian Pensions

Australian age pensions can be paid overseas indefinitely. More than 60,000 Australian pensioners are living permanently overseas and still receive the age pension every fortnight. That is the good news. The really good news.

The bad news is that there are quite strict conditions on Australian pensions paid overseas. It is critical that you are aware of these conditions and how they apply to your personal circumstances BEFORE you leave the country permanently – or even semi-permanently.

If you are living overseas when you reach pension age, currently 65, you will face very large barriers to a successful pension application. If you are already receiving the age pension when you move overseas you need to be aware of the Australian Working Life Residency Rule. It may impact the amount of pension you receive overseas. And you will also need to assess the impact of losing your pension supplements.

Another trap is the impact that selling or renting the family home may have on your pension eligibility. Will you fail the asset or income tests?

If you are already eligible for the age pension

If you qualify for a pension already – that is, you have met the required assets test, income test and residency test under Australia’s Social Security Act – you should have few problems in transporting that pension or part pension overseas.

It is important, however, that you apply for, and receive, your first pension payment while you are still resident in Australia and before you make any move to relocate. This is the first and most critical rule. If you meet that condition, you are almost there.

But don’t get too confident. There are some extra conditions to meet to achieve what the government calls ‘full pension portability’. You are going to have to learn and understand a few new terms – particularly the Australian Working Life Residency rule or AWLR.

Australian Working Life Residency Rule

This is important because if you don’t meet the AWLR requirement in full, you may receive only a proportion of your pension.

Put simply, whenever a person receiving an age pension is outside of Australia for more than SIX WEEKS (IT WAS 26 WEEKS, BUT THIS WAS SHORTENED IN THE 2015 BUDGET), then their pension payment becomes subject to the AWLR. The amount of pension they receive then depends on the length of their residency within Australia between the ages of 16 and pension age, which is 65 for most people. It is not necessary to have worked or been employed for that time, simply living in Australia is enough.

From January 1, 2014, the AWLR requirement is 35 years. If you do the arithmetic, this means that if you have spent more than 13 years living outside Australia between the ages of 16 and 65, it is important to have a close look at the AWLR requirements.

There are some important exemptions to this rule. For example, if you spent time in a country that has an International Social Security Agreement with Australia, then the years spent in that country can be included alongside your years spent in Australia to calculate your AWLR. Note that no countries in Asia have such an agreement with Australia but many countries including the United States and Spain do have such an agreement. There is a full list of these countries on the Department of Human Services website.  

If you do not meet the 35 year AWLR rule your pension will be reduced. For example if you spent only 20 years in Australia (and a qualifying country, as above) between the ages of 16 and 65 you will receive 241/420 of the pension you were entitled to when you were residing permanently in Australia. (The calculation is done in months. The denominator 420 represents 35 multiplied by 12. The numerator of 241 in this example represents 20 multiplied by 12 plus 1.) Don’t ask why they calculate it this way – they just do.

Pension Supplements

The age pension payment is made up of two parts – the pension itself and supplements. The pension part is fully portable subject to the AWLR rule. The supplements are not portable and most cease to be paid once you have been out of Australia for more than six weeks – it used to be 13 weeks but it has recently been tightened up.

The pension supplement typically covers telephone, mobility and utilities and can be worth up to $160 a quarter or $640 a year.

The other card that will be cancelled after six weeks out of the country is the Commonwealth Seniors Health Card. A reclaim for the health card can be made over the phone as long as it is made within 13 weeks of the cancellation. But a full online or paper reclaim is required after you have spent 26 weeks overseas.

If you are under 65

If you are under 65 when you decide to relocate overseas, then eligibility for the age pension becomes a very serious issue and one that must be carefully investigated before you make your final decision.

Take the example of Judy and Bill. They decided to move to Thailand when they were both 62 with the intention of eventually applying for the age pension when they reached 65. They were confident that they would qualify under the asset and income tests set by the government. Plus they had older friends who were living in Thailand and receiving fortnightly pension payments from Australia with no problems at all.

But Judy and Bill were not aware that they also had to meet a strict residency test. The bottom line was that if they wanted to receive the age pension they had to return to Australia and resume residence. They had to convince the Department of Human Services that they had returned to Australia permanently. And that is not all. Once granted the age pension, they could not leave the country for the next two years or they would risk losing their pension. It is pretty onerous.

Theoretically, Judy and Bill could have a two year sojourn back in Australia, start receiving their pension shortly after they return to the country and then, two years down the track, return to Thailand with full portability of their pension payments. But that is not the spirit of the law. If the government believes that is your intention then, under the Social Security Act, you are not considered a resident and therefore should not be granted a pension at all. It is a pretty tough rule.

Qualifying for an Age Pension – Residency Requirements

To qualify for the Age Pension an individual must have reached pension age, be an Australian resident (that is, living in Australia on a permanent basis), be in Australia on the day their claim is lodged, and be an Australian resident for a total of at least 10 years, with at least five of these years in one period.

There are other sections that apply to refugees and widows, who were born outside Australia and were previously married to an Australian citizen. But for our purposes the first requirement – an Australian resident who has been resident in Australia for a total of at least 10 years and who is resident in Australia on the day the claim is lodged.

Now, if you were Judy or Bill in our previous example you might argue that you were born in Australia, spent most of your life there and were ‘resident’ in Australia on the day that you lodged the claim.  Unfortunately, the legislation is a bit stricter than that. The Department of Human Services takes into account a number of factors to determine whether you really qualify as a resident on the day the claim is lodged.

The Social Security Act is quite clear on the circumstances that the Department will take into account in determining residency.

These are listed in the legislation as follows:

 “In deciding for the purposes of this (Social Security) Act whether or not a person is residing in Australia, regard must be had to:

    (a)  the nature of the accommodation used by the person in Australia; and

    (b)  the nature and extent of the family relationships the person has in Australia; and

    (c)  the nature and extent of the person’s employment, business or financial ties with Australia; and  

    (d)  the nature and extent of the person’s assets located in Australia; and

    (e)  the frequency and duration of the person’s travel outside Australia; and

    (f)  any other matter relevant to determining whether the person intends to remain permanently in Australia.

It states that all of these matters have to be taken into account – not just one or two matters.

Failing the Assets Test

Assume that everything has fallen into place for you – that you are eligible for the age pension, you have successfully applied for it while still a resident of Australia and you meet the requirements of AWLR having spent at least 35 years in Australia between the ages of 16 and 65. That is fine – but there are still a few traps to consider.

For example, the assets test. In Australia, your principal place of residence, your home, is exempt from the assets test. Once you move overseas however, that home may no longer your principal place of residence for pension purposes. If you sell it, the proceeds of the sale will be taken into account in determining whether you pass the assets test. If you rent it out, the income you receive in rent will be taken into account in determining whether you pass the income test. And it doesn’t work to claim that you have sold your house in Australia but you have used the money to buy your new home, your new principal place of residence, overseas. The Department will not accept that – only a principal place of residence within Australia is exempt from the assets test.

Keeping Up With Changes to the Law

It is also important to keep abreast of any changes in pension eligibility. Retrospective legislation is very rare in Australia, so the chances are that if you have qualified for the age pension and for pension portability then your situation will be permanent. You should be safe – unless you return to live in Australia for a few months. If you do this, you may become subject to any changes in the law while you have been away. This has happened twice recently with two separate changes in legislation.

The first change was to the AWLR. Prior to January 2014, pensioners moving overseas were required to have an Australian Working Life Residence of just 25 years between the ages of 16 and 65. From 2014 this requirement was lifted to 35 years. Any pensioners who were already overseas in January 2014 were still subject to the 25 year rule. But if they return to Australia and reside there for several months, the proportionality rule changes to a 35 year AWLR requirement if they move overseas again.

There has been a similar situation with disability support payments. This is not really relevant for our purposes, but, just briefly, there is a new law that disability payments will be stopped for those pensioners who move overseas except under very tight conditions. The new law does not apply to those who already reside permanently overseas – they will still receive their disability support payments even if they don’t meet the new tougher rules. But if they return to live in Australia for a while they will be subject to the terms of the new law when they return overseas.

The bottom line is to be prepared and to remain informed. Research pension eligibility very closely before you finalise your move overseas. And keep an eye on any changes while you are away.