As we move towards a federal election you can bet that retirees will be a major focus for all political parties. After all, they are the fastest growing group in the country and most of them have plenty of time on their hands to voice their opinions.
But the system is complex, and many people find it hard to work their way through the labyrinth of regulations. As a result, they may fail to qualify for a pension, lose their pension, or receive less than they would if they received advice from a professional.
The age pension is a major source of income for most Australian retirees. A bonus is that eligibility for a part pension gives them access to most of the pension's fringe benefits, including the prized pensioner concession card, even if their age pension is only minuscule.
Eligibility is tested under both an income and an assets test, and the one that produces the least pension is the one used. There is age pension calculator and a deeming calculator on my website www.noelwhittaker.com.au
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Most wealthier pensioners are asset tested, yet I keep receiving emails from them asking if it's okay to earn some more money. Of course it is - the income test is not relevant if you are asset tested. A couple with assets of $800,000, receiving a pension of $136.80 a fortnight each, could have assessable income of $68,000 a year including their deemed income, and employment income, without affecting their pension because they would still be asset tested.
Your own home is not assessable, but your furniture fittings and vehicles are assets tested. Many pensioners fall into the trap of valuing them at replacement value. This could cost them heavily because every $10,000 of excess assets reduces the pension by $780 a year. Make sure these assets are valued at garage sale value, not replacement value. This puts a value of $5000 on most people's furniture.
There is no penalty for spending money on holidays, living expenses and renovating the family home. But don't do this just to increase your pension. Think about it, if you spend $100,000 renovating your home your pension may increase by just $7800 a year - but it would take almost 13 years of the increased pension to get the $100,000 back.
Of course, the benefit of money spent should be taken into account too - money on improving your house, or travelling could have huge benefits for you. The main thing is not to spend money with the sole purpose of getting a bigger age pension.
Each year on March 20 and September 20 Centrelink values your market linked investments, such as shares and managed investments, based on the latest unit prices held by them. These investments are also revalued when you advise of a change to your investment portfolio or when you request a revaluation of your shares and managed investments. If the value of your investments has fallen, there may be an increase in your payment - if the value of your investments has increased, then your payment may go down.
The rules are in favour of pensioners. If the value of your portfolio arises because of market movements you are not required to advise Centrelink of the change - it will happen automatically at the next six-monthly revaluation. However, if your portfolio falls you have the ability to notify Centrelink immediately.
You can reduce your assets by giving money away, but seek professional advice. The Centrelink rules only allow gifts of $10,000 in a financial year with a maximum of $30,000 over five years. Using these rules you could gift away $10,000 before June 30 and $10,000 just after it, and so reduce assessable assets by $20,000.
Next week I will explain some of the areas where people fall into traps.
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Noel answers your money questions
I've recently learned that if a person is living in a caravan (or a tiny house on a trailer) that they own, which is sited on land they don't own, Centrelink will call that person a "home-owner". As you well know, that has implications for the calculation of their pension amount.
There is no other regulatory domain which classifies a caravan as a "home". For zoning purposes and DA proposals to local councils, caravans are not homes and aren't permitted to be homes. Furthermore, they have to be registered for the road! What says you to this obvious anomaly?
A spokesperson for the Department of Social Services says that it is a longstanding requirement of Australia's Social Security System that people use their own resources before calling on taxpayers for support. The social security system measures a person's need for income support and their capacity to contribute towards their own support. Home ownership is considered in determining a person's capacity for self-support.
For social security purposes, a homeowner is a person who has a right or interest in the place they occupy, and the right or interest gives them reasonable security of tenure. As such, a person would be considered a homeowner if they or their partner own (in part or in full) and live in a caravan, which provides them with reasonable security of tenure.
A caravan would not be considered a person's principal home if they only use it for short periods of time while holidaying or are travelling around Australia for less than 12 months and have a principal home to return to.
I am 56 and looking to access some of my super at 60 when I retire. This talk around a $1.7 million figure baffles me. If my SMSF has a balance of $5 million, can I make a lump sum withdrawal of $2.5 million to put towards buying a nice house to live in. I would then keep the remaining $2.5 million in shares in the SMSF earning dividends etc. Drawings from the fund would then be around $200,000 a year for living expenses.
Once you have reached 60 and retired you can make withdrawals as needed from your fund and spend the money any way you wish. The $1.7 million number is relevant in two areas only. Non-concessional contributions are prohibited once your fund balance exceeds $1.7 million; and $1.7 million is the most you can transfer from accumulation mode to pension mode when you decide to start a pension.
- Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. Email your money questions to firstname.lastname@example.org