Ask the Expert: Don’t reduce assets to boost pension
Question 1
I am looking at retiring at age 60 (three years away) and using super for income until I reach pension age. I own my own home and a rental property valued at $450,000 and have over $500,000 in super. My wife has a smaller super balance of about $100,000 and I am looking at ways to reduce my assets to increase my pension allocation (when the time comes).
Will setting up a family trust achieve anything or will the assets still be counted if I am the one with control of the trust? As an alternative, am I better off selling the property between 60 and pension age and putting the money into my super?
Consider broadening your goals to more than just getting as much age pension as you can.
What income do you actually want to live on in retirement? Do you have other financial and personal aspirations?
Rental income, investment income and superannuation income can all work together with the age pension to provide a combined or layered income in retirement.
Coming directly to your questions, more than 20 years ago Centrelink changed the way it assessed family trusts. Centrelink uses “look through” provisions and if you retain control of the family trust, then the underlying assets will still be assessed against you.
Most assets are treated similarly by Centrelink. This includes bank accounts and superannuation accounts/pensions. They are simply counted under the assets test and “deemed” (or assumed) to achieve a specific return, regardless of their actual earnings, under the income test.
You might like
An investment property is a little different. It’s still asset tested at its current value but it’s the actual rent that is included in the income test.
When looking to start an income stream from your super, you could look at putting some of the funds into a complying annuity or pension. The funds are generally locked away but provide a lifetime income stream and are concessionally treated by Centrelink. For example, only 60 per cent of the purchase price is counted under the asset test, reducing to 30 per cent when you reach age 84.
Don’t reduce assets just to get a bigger pension. Use your assets to buy things or experiences you want, and/or to generate an income above the age pension.
A homeowner couple can have more than $1 million in assets and still receive a part age pension. And as you gradually draw down on your assets throughout your retirement, your part age pension will then increase.
Question 2
My husband wants to retire at 70 in 2026, but I will be only 65 then. Am I able to claim a pension from my super for the two years until I reach pension age at 67 and half? I have an accumulation account and transition-to-retirement account. JD
Hi JD,
Your qualifying age pension age will be 67. That is now the same for everyone.
Stay informed, daily
Once you turn 65, there is no restriction on what you can do with your super – leave it in super, withdraw it, start a pension, or a combination of these. This is regardless of whether you will be still working on not.
Many people who retire, or semi-retire, before age pension age will rely heavily on their super for income until they attain age pension age. At that point, they then can reduce the payments from their super if they start to receive a full or part age pension.
One thing to consider though, is that as your husband will be receiving the age pension already, if you move your super to a pension it will be counted under the income and assets test in relation to working out how much he can receive. Therefore, you may only want to move some of your super to a pension or leave it in super and take lump sums out as needed until you reach age 67.
Question 3
My wife (62) and I (69) have an self-managed super fund and are both retired in pension phase. Is it allowed for me to transfer some of my super balance to my wife as, if I have a good year next financial year, I will be over the $3 million extra taxation limit. My wife is way below this at about $500,000.
You cannot simply “transfer” funds between different individual’s super accounts.
You would have to cash out some of your funds – not a problem, given your age – and then your wife can contribute the funds to her account.
If the additional tax on super balances does get legislated, then evening up super balances between couples will become even more popular.
Just make sure your wife does not exceed her non-concessional cap. The annual cap is $120,000 but under the “bring forward” rules $360,000 can be made in one go (if her balance is below $1.66 million) but then nothing for the following two years.
Craig Sankey is a licensed financial adviser and head of Technical Services and Advice Enablement at Industry Fund Services.
Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.
Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.
