What assets can you have before losing your pension?

3 mins

There are many benefits to receiving a pension or even a part pension, but there are limits to what level of income or assets you can have to be eligible.

Regarding assets, the key limits as at 1 July 2019 are as followsi:

To receive a full pension, assets (excluding the value of the primary residence) must be less than: 

 

Homeowner

Non-homeowner

Single

$263,250

$473,750

Couple

$394,500

$605,000

Indexed every 1 July. Source: Australian Government Department of Human Servicesi.

To receive at least a part of a pension, assets must be less than:

 

Homeowner

Non-homeowner

Single

$572,000

$782,500

Couple

$860,000

$1,070,500

Couple – separated by illness

$1,012,000

$1,222,500

Indexed every 20 March, 1 July and 20 September. Recipients of Rent Assistance will have higher thresholds. Source: Australian Government Department of Human Servicesi.

There are a number of strategies that can be used to reduce asset levels, which can result in qualifying for a part pension or increasing the current pension amount received. 

However, before reducing your assets it is important to bear in mind whether your remaining savings can support any shortfalls in retirement income needs, as any increased pension amount may still be inadequate. Personal circumstances can also change and increase the reliance on your reduced savings. For example, future health issues may require a move into aged care, which can bring increased expenses. 

With that in mind, here are six assessable asset reduction strategies:

1. Gift within limits, or more than 5 years before qualifying age

If there is a desire to provide financial assistance to family or friends, gifting can reduce your assessable assets. The allowable amounts a single person or a couple combined may gift is $10,000 in a financial year or $30,000 over a rolling five financial year period. Any excess amounts will continue to count under the asset test (and deemed under the income test) for five financial years. 

If you are more than five financial years away from reaching your age pension age or from receiving any other Centrelink payment, you can gift any amount without affecting the eventual assessment once you reach Aged Pension age. 

2. Homeowners can renovate

Your home is an exempt asset and any expenses paid to repair or improve it will form part of its value and will also be exempt from assets testing.

3. Repay debt secured against exempt assets

Debts secured against exempt assets do not reduce your total assessable assets. An example is a mortgage against the family home. However, using assessable assets to repay these debts can reduce asset levels. Crucially, you must make actual repayments; depositing or retaining cash in an offset account will not achieve this outcome.

4. Funeral bonds within limits or prepay funeral expenses

If you wish to set aside funds or pay for your funeral costs now, there are a couple of ways to do this and reduce your assessable assets. 

A person can invest up to $13,250 (as at 1 July 2019) in a funeral bond and this amount is exempt from testing. Members of a couple can have their own individual bond up to the same limit each. By contrast if a couple invests jointly, this must not exceed $13,250, not double the limitii

In comparison, there is no limit to the amount paid for prepaid funeral expenses. For the expenses to qualify there must be a contract setting out the services paid for, state that it is fully paid, and must not be refundable. Importantly, both methods of paying for funeral costs are designed purely for this purpose preventing assets being accessed for any other reason. 

5. Contribute to younger spouse's super and hold in accumulation phase

If you have a younger spouse who has not yet reached their age pension age and is eligible to contribute to super, contributing an amount into their account may reduce your assessable assets. The elder spouse can even withdraw from their own superannuation, generally as a tax-free lump sum, to fund the contribution. 

Investments held in the accumulation phase of superannuation are not counted towards their assessable assets if the account holder is below the pension age. Before using this strategy any additional costs incurred should first be considered. Holding multiple superannuation accounts may duplicate fees. Shifting funds into an accumulation account may increase the tax on the earnings on these investments to 15%. Alternatively, earnings on the funds are tax-free if invested in an account-based pension or potentially even personally. 

Additionally, contributing to a younger spouse who is under age pension age who is still working will 'preserve' the funds. They should also ensure they do not exceed their contribution capsiii.

6. Purchase a lifetime income stream

Lifetime income streams such as an annuity purchased after 1 July 2019 may be favourably assessed, according to the Social Services and Other Legislation Amendment (Supporting Retirement Incomes) Bill 2018iv. Where eligible, only 60% of the purchase price is assessed. This drops to 30% once you reach the later of, age 84 (based on current life expectancy factors) or five years. 

To receive concessional treatment, the lifetime annuity must satisfy a 'capital access schedule' which limits the amount that can be commuted voluntarily or on deathiv. This is illustrated below:  

Capital Access Chart

Source: Parliament of Australiaiv

Voluntary commutations must follow a 'straight-line' declining value, falling to nil at life expectancy. The death benefit can be up to 100% until the investor reaches half of their life expectancy, at which point it will follow the voluntary withdrawal valueiv

Conclusion

Reducing your assessable assets within the relevant assets test threshold can provide many benefits such as increasing your existing pension or allowing you to qualify for a part pension if you were above the upper threshold. 

While it is tempting to intentionally reduce your asset levels to gain these benefits, it is important to remember the payment rate is determined by applying both an income and assets test. The one that results in a lower entitlement determines the amount payable. If the income test is the harsher test, reducing your assessable assets may provide no benefit. 

If the assets test is harsher, you should not lose sight of the fact that any reduction in your assets means there are fewer assets for you to call upon if required.

i. https://www.humanservices.gov.au/individuals/services/centrelink/age-pension/how-much-you-can-get/assets-test/assets
ii. https://www.humanservices.gov.au/individuals/services/centrelink/age-pension/how-much-you-can-get/assets-test/assets/funeral-bonds-and-prepaid-funerals
iii. https://www.humanservices.gov.au/individuals/services/centrelink/age-pension/how-much-you-can-get/assets-test/assets/income-streams
iv. https://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fems%2Fr6224_ems_58c16ce0-95fa-4ef6-afe4-668b3e41fb62%22

Building wealth 22 May 2019
Being actively involved in how and where your super is invested, can make a real difference to your retirement savings over the long-term. We take a look at four examples of investment strategies
Retirement 09 Oct 2019
Whatever your vision of retirement is, making the most of your retirement years is certainly something worth planning for.
Retirement 15 Oct 2019
There is a whole world of benefits seniors can tap into – from extra income to valuable discounts. Check out what’s available to help you get more from your retirement.

This article was prepared by Michael Tran, Technical Consultant, BT, a part of Westpac Banking Corporation ABN 33 007 457 141, AFSL and Australian Credit Licence 233714. Information is current as at 13 August 2019. This information does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness, having regard to these factors before acting on it. This document provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This document may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, the Westpac Group accepts no responsibility for the accuracy or completeness of, nor does it endorse any such third party material. To the maximum extent permitted by law, we intend by this notice to exclude liability for this third party material.

Superannuation is a means of saving for retirement, which is, in part, compulsory. The government has placed restrictions on when you can access your investment held in superannuation. The Government has set caps on the amount of money that you can add to superannuation each year on both a concessional and non-concessional tax basis.  There will be tax consequences if you breach these caps.  For more detail, speak with a financial adviser or visit the ATO website.  BT cannot give tax advice. Any tax considerations outlined in this article are general statements, based on an interpretation of the current tax law, and do not constitute tax advice. The tax implications of superannuation can impact individual situations differently and you should seek specific tax advice from a registered tax agent or registered tax (financial) adviser.