Thousands of Australian age pensioners are receiving letters from Centrelink warning that the expected fortnightly pay rise due on September 20 will be smaller than anticipated — or, in some cases, that their pension will be reduced or cancelled entirely. Rising asset values and an automatic recalculation of entitlements under Centrelink's means tests are driving the changes, but financial advisers say there are practical steps pensioners can take to soften the blow.

What's changing on September 20

The September 20 adjustment is Centrelink's twice-yearly indexation of income support payments. From that date, single pensioners — including those on the age pension, disability support pension and carer payment — will receive an increase of $36.80 per fortnight, bringing their payment to $1,237.70. Couples will each receive an additional $27.80 per fortnight, lifting their combined fortnightly total to $1,866.

However, the same date triggers a recalculation of entitlements under both the income test and the assets test. Centrelink applies whichever test produces the lower payment, meaning a lift in asset values can directly reduce what a pensioner receives — or wipe out the indexation increase altogether.

The primary culprits this round are strong returns in superannuation funds exposed to shares and direct share investments, as well as periodic revaluations of investment properties. With asset values having risen, many pensioners find themselves in a worse position under the assets test than they were six months ago.

How deeming rates factor in

September 20 also brings an increase to Centrelink's deeming rates — the notional rates of return the government assumes all financial assets are earning, regardless of actual investment performance. Financial assets captured under deeming include cash, bank accounts, shares, managed investments, account-based pensions, bullion, superannuation accumulation accounts for those aged 67 or older, and gifts above $10,000.

Under the updated structure, the first $66,800 of financial assets for singles (and $110,600 combined for couples) is deemed to earn 1.75 per cent. Any financial assets above those thresholds are deemed to earn 3.75 per cent. The resulting annual figure is divided by 26 to produce a fortnightly income figure, which is then tested against the income-free area of $226 per fortnight for singles and $396 per fortnight for couples. For every dollar of deemed income above these limits, the pension is reduced by 50 cents.

How to reduce the impact on your age pension

Financial planners warn that many pensioners are inadvertently receiving less than they are entitled to because they have not updated Centrelink about changes to their financial position. Under the rules, pensioners are legally required to notify Centrelink within 14 days of any $2,000 change in assets.

One commonly overlooked opportunity involves large expenditures. An asset-tested couple who spend $60,000 — on a trip, for example — and fail to inform Centrelink could be missing out on as much as an extra $180 per fortnight in pension payments.

There are also frequent errors in how fixed assets such as cars, caravans and household contents are valued. Centrelink should hold the realistic second-hand private sale value of these items — not their insured or replacement value. For general household contents and personal effects, Centrelink will typically accept a value of $10,000.

Similarly, with property values falling in parts of Australia, it is worth reviewing any real estate valuations Centrelink holds on file. If a property's assessed value is higher than what it would realistically fetch in today's market, requesting a reassessment could lower the asset total and improve entitlements.

For those navigating these complexities, it may be worth reviewing broader government policy changes that could affect retirement finances in the period ahead.

The key message from financial advisers is straightforward: keeping Centrelink's records accurate and up to date is one of the most effective — and overlooked — ways to ensure pensioners receive every dollar they are entitled to.