Six easy steps to avoid cuts to your pension
THE government's changes to the Aged Pension assets test are driving pensioners to look for innovative ways to protect themselves and their income.
Financial planner Liam Shorte, of Verante Pty Ltd, said feedback from within the community was that the changes were hitting middle-income earners, who believed the Federal Government's cost-saving measures should target companies and wealthier individuals instead.
"There is a lot of bad feeling among the people who have been affected, basically because a lot of them planned their retirements around what they could expect from the Aged Pension plus their own money," Mr Shorte said.
"It's such a huge difference. For every $1000 you reduce your assessable assets by, you can get $78 extra pension per year.
"That's a 7.8% return if you can use the $1000 to improve your wealth rather than give it away," he added.
Mr Shorte offered the following strategies to help pensioners reduce the impact of the Aged Pension assets test:
- 1/ SUPERANNUATION: Contribute to a superannuation fund in the name of a spouse if they are under Age Pension age. Moving $50,000 in savings to your spouse's superannuation fund could increase your single pension by nearly $4000 per year, until your spouse qualifies for the Age Pension.
- 2/ FUNERAL BONDS: A person is allowed to invest up to $12,250 into Funeral Bonds to cover funeral costs and the investment is asset test exempt. For a couple both taking up the maximum Funeral Bond, it could increase your joint age pension by $1911 per year.
- 3/ HOME IMPROVEMENTS: Funds spent on improvements and renovations to your principle home are not assessed against your pension. For example, spending $12,000 on a solar system will pay you back via savings on your electricity bills over 10 to 15 years, but also mean up to $938 extra in pension income each year per person.
- 4/ REVIEW VALUES: Review the value of motor cars, caravans, trailers, bikes, contents and personal effects.
- 5/ PRE-PAY: Look to pay for the big cruise or overseas trip in advance. Ask for a discount for doing so or an upgrade.
- 6/ GIFTING: The allowable gifting limit for both singles and couples is $10,000 per financial year, limited to $30,000 per five financial years. If the total of gifts made in a financial year exceeds $10,000 the excess will be assessed as a deprived asset for five years from the date of the gift and will be subject to Centrelink's means test.
However, Mr Shorte said: "This [gifting] is not something I recommend often as it seems a bit silly to give away capital to get some income.
"However, if you have planned to help family, such as paying towards a home deposit for your adult child or education costs for your grandchildren, then maybe you should think about transferring the money early."
IMPROVE YOUR INCOME
Alternatively, you can look to bolster your income to make up for the loss in Age Pension by renting out a room.
For example, you could rent out a room and charge $150 a week for the room, which includes breakfast.
Centrelink's default position is that 50% of that $150 a week is treated as additional income (about $3900 per year). The remaining 50% is assumed by Centrelink as required to cover costs, such as utilities, food, etc.
If your actual costs are higher than the 50%, you can make a submission to Centrelink for the standard 50/50 approach to be adjusted. Lower Centrelink assessments are available where more meals, etc, are offered.
If you are an asset-based part-pensioner, the additional $3900 in income should not further impact your pension.
Mr Shorte said he gives clients some strategies to think about and then he sends them to a Centrelink financial information service officer.
"They help people make the most of the system, but they can't give advice," Mr Shorte said.
"We get them to go to Centrelink to run (the strategies) past them to see if they are possible in their situation.
"The Centrelink officer may then send them back to us to implement the strategy."
Mr Shorte encourages pensioners to try to use all the services in the system to make sure they are doing whatever they can to improve their situation.