ADVICE

Changes to age pension: Calculate how it impacts you

Age pension changes seem simple but devil is in the detail

The latest six-monthly age pension adjustments have taken place - effective from 1 July. The main changes are a slight increase in the levels at which both the asset test and the income test starts to taper. The maximum pension for a single person remains at $952.70 a fortnight, and for a couple $718.10 a fortnight each.

Up-to-date pension calculators and detailed pension charts are on my website www.noelwhittaker.com.au.

The lower asset limits are now $270,500 for a single pensioner and for a couple $405,000 Once these levels are exceeded the pension tapers until it reaches the point where no pension is payable. The fortnightly base income threshold is $320 for a couple and $180 for singles.

The cut-off point for a homeowner couple has gone up to $884,000 and for a single pensioner $588,250. For non-homeowners the numbers are $1,100,500 and $804,750 respectively. The income test cut-off points are now $83,002 per annum for a couple and $54,220 for a single.

If one partner is eligible, and the other is under pensionable age, the eligible partner receives half the couple's pension.

You are tested under both an assets and an income test, and Centrelink applies the test that gives you the least pension. Consider a homeowner couple with assessable income of $800 a fortnight and assessable assets of $740,000. Their pension under the income test would be $598.10 fortnight each - under the assets test $215.60. Therefore, they would qualify for an age pension of $ $215.60 a fortnight each

The value of your assets does not include your family home, while your chattels such as furniture, car and boat are valued at second hand value, not replacement value. This puts a figure of $5000 on most people's furniture.

The income test is not relevant if you are asset tested. For example, a single person with assets of $540,000 and receiving a pension of $144.20 fortnight could have assessable income of $45,000 a year including their deemed income, and employment income, without affecting their pension because they would still be asset tested.

If you are at the higher end of the asset test scale seek advice about the new lifetime pension products. For example, a 70-year-old couple may have $900,000 of assessable assets and accordingly be over the assets test cut-off point. If they invested $300,000 of their superannuation in a QSuper lifetime pension they may be able to receive a pension of just over $20,000 a year indexed for both of their lives, plus the age pension of just over $8000 a year. This would boost their income by $28,000 a year, and still leave them with $600,000 of assessable assets

The rules are prima facie simple, but there is devil in the detail. If a member of a couple has not reached pensionable age it's prudent, if appropriate, to keep as much of the superannuation in the younger person's name so it's exempt from assessment by Centrelink. However, the moment that fund is moved to pension mode, it's assessable irrespective of the age of the member.

Furthermore, a debt against an investment asset is not deducted from the asset value, unless the mortgage is held against the investment asset.

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YOUR MONEY QUESTIONS

Question:

My mother-in-law aged 81 has placed a deposit on a retirement villa in WA in a large not for profit retirement village. She is selling her house in Canberra and will move across to Perth.

As her Canberra property has received a surprisingly high price her assets will increase.

The retirement company has been very helpful and it is a good facility. We understand all the financial implications except the effect on her pension. If she pays $240,000 to enter the facility and it's leasehold will she be considered a homeowner or a non-homeowner. If she is a non-homeowner is the lease fee included in the asset test?.

Unfortunately the operator's answers have been "it won't affect the pension". They don't know her finances. The bottom line is that we want to know which Asset test applies to her as she will exceed the $268,000 limit for homeowners by about $80,000.

Answer:

My co-author on Downsizing Made Simple, Rachel Lane, explains that as a general rule in a retirement village the amount you pay is compared to what is known as the extra allowable amount. This is currently $214,500. If the amount you pay for your lease in the village is more than this you are a homeowner - as is the case here. As a homeowner her home in the village is exempt and she will not be eligible for rent assistance. The current asset test threshold for a single homeowner will be $270,500 on 1 July, , so if she exceeds the test by $80,000 then her pension will be $713 per fortnight under the asset test. Some simple but effective financial advice from a specialist could really help your mother. The problem is that the $80,000 of surplus assets is costing her around $4500 a year in lost pension leaving the money in the bank won't replace this.

Question:

I was made redundant at age 68 and was told that if I retired at 65 my redundancy package would not have been taxed so high... I feel this was wrong given the government wants people to work even longer. I wondered if you were aware of this government taxing if someone retired or was made redundant after 65?

Answer:

There are certainly some generous redundancy tax concessions but they do not apply once you have reached pensionable age. It is the government's view that anybody of pensionable age or over cannot be made genuinely redundant. Note that from July 1, 2019 the pensionable age test for this and other purposes was increased to 67.

Question:

Can you please explain the Centrelink treatment of rental properties? Are they subject to deeming?

Answer:

Deeming usually applies only to assets such as bank deposits, shares and superannuation as it would be impractical to list the actual return from teach of those assets for the income test. Other assets such as investment property, vacant land and even gold are simply valued at their current market price for the assets test. Where the property's income producing, the taxable income (ie income less expenses) is used for the income test. Keep in mind the income test is only applicable if you are not asset tested.

Question:

My wife and I own our house. To assist our son and his partner to buy their first home we went guarantor , with the bank using the deeds from our home as additional security. The house is now worth around $475,000 and the loan is $440,000. How much time must pass before we can get our title deeds back?.

Answer:

Firstly, I commend you for not putting your name on the title deed. That could have resulted in a large capital gains tax bill in the future. When assessing a loan a lender looks both at security and capacity to pay. If the equity was under 20% of the home value, they would require mortgage insurance which can be quite expensive . Therefore, based on the present valuation, the loan would need to be under $380,000 in order for the deal to stand on its own without mortgage insurance. The next issue is the capacity of your son and his partner to make the mortgage payments on a loan of $380,000 on their own. Once the two goals of a reduced loan, and proven capacity have been achieved it should be reasonable to ask the bank to release your guarantee. If they don't, and the deal stacks up, I am sure other banks would be happy to look at it favourably.

  • Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. Email: noel@noelwhittaker.com.au