ADVICE

Increase in payment welcomed by age pensioners

Increase in payment welcomed by age pensioners

It's been a good week for pensioners with the announcement that the latest six monthly pension increase will see them $20 a fortnight better off - effective from March 20.

Furthermore, last week the government was floating the possibility of a one-off payment for pensioners to be announced in the federal budget on Tuesday, March 29.

Given it's an election year, that was not unexpected.

The current adjustment, which commences from March 20, is an increase in the age pension, not an adjustment to the taper rates, but it does flow through.

The levels at which the pension starts to reduce, both for the asset test and the income test, have remained unchanged, but the effect of the increased pension means the cut-off points, when no pension is payable have increased.

This could enable more people to get an age pension because the asset test cut-off number is now higher.

A single homeowner can have up to $599,750 of assessable assets and receive a part pension - for a single non-homeowner the lower threshold is $816,250.

For a couple, the higher threshold to $901,500 for a homeowner and $1,118,000 for a non-homeowner.

To calculate your entitlement, just go to the Age Pension calculator on my website www.noelwhittaker.com.au, which is up-to-date with the new numbers.

You can also go to the resources section of the website and download the latest pension charts, which may make it even clearer.

COMMON QUESTION

There is one issue which continues to bug people.

The following email is typical of the ones I get on a regular basis.

"I have been trying to explain the Centrelink gifting rules to my 90-year-old father, who is on a part pension. He is under the belief that gifting more than $10,000 is prohibited. I told him he can gift as much as he wishes. Your clarification would be most appreciated. He seems to think his pension will be reduced if he makes gifts."

This is a common misconception. There is no limit to how much a person can give away, but to prevent people giving away assets just to increase their pension, any gifts over $10,000 in a financial year, or $30,000 over five years, are treated as deprived assets and will still be asset and income tested for five years from the date of the gift.

There is no reduction in the pension because Centrelink regards their assets as being unchanged, even though they have been reduced because of the gift.

Think about a couple with $800,000 in assessable assets and who are receiving a part pension.

If they gave $200,000 to a grandchild for a home deposit, the first $10,000 gifted is within allowable limits, and the remaining $190,000 gifted will still be counted as an asset, and their pension would be largely unchanged because Centrelink would still regard them as having $790,000 of assessable assets. However, in five years those deprived assets will no longer exist for Centrelink purposes and, depending on other factors at that time, could result in an increase in their pension.

There is just one other issue. Any seniors thinking of giving money away to their family should make sure they retain enough funds for entry to aged care if necessary. Money given away is usually hard to get back.

NOEL ANSWERS YOUR MONEY QUESTION

Question

I understand that I can split up to 85 per cent of my superannuation contributions with my spouse but am wondering about the benefits in doing so?

I'm 43, and have $470,000 in super, my wife is 40 and has $30,000 in super.

I earn significantly more than my wife, ($155,000, to my wife's $25,000) as she works part-time.

I also contribute additional to my super to take advantage of the lower tax rates in super.

We top up my wife's superannuation every year with $1000 to take advantage of the additional $500 co-contribution from the government.

I have also started to do a yearly after tax spousal contribution of $3000 to my wife's superannuation and thus obtain an extra $540 in my tax return.

But I'm not sure if there are any benefits to splitting my superannuation contributions with my wife's super?

It wouldn't change our combined total superannuation.

It seems like it is just moving money from one bucket to another.

I can't see any benefit but would really appreciate your thoughts and wisdom on this.

Answer

Over time there has been a push against large superannuation balances, and the introduction of concessions, which apply only to smaller balances.

For example, if a person wished to mitigate a capital gain by making tax deductible superannuation contributions, in excess of the current $27,500 cap, they could only use the carry forward rules (ie unused cap since 2018) if their super balance in the previous June 30 was under $500,000.

There are also provisions where people can withdraw money from superannuation once they reach preservation age but this lump sum withdrawal is part taxable before age 60 once it exceeds $225,000.

Therefore, having superannuation split between a couple could give each an opportunity to withdraw lump sums of $225,000 tax free.

At age 65, your superannuation could be worth in excess of $3 million if your fund earns 8 per cent and your salary continues to increase.

Under the current rules, only one $1.7 million can be transferred to pension mode.

Obviously, it would be better for a couple to have $1.5 million each in super than one having very little and one having a large balance.

Question

I earn less than $52,697 pa and understand that if I contribute $27,500 post tax dollars into my super fund, the government will add half of this as a co contribution by adding an additional $13,750 into my superfund. Am I correct in this interpretation?

Answer

Unfortunately, I have bad news for you. The maximum co-contribution is $500 for people who make at least a $1000 non-concessional (ie. after-tax) contribution but this applies only to people whose taxable income does not exceed $41,112 in the current financial year. Once income exceeds that limit, the co-contribution tapers and cuts out completely at $52,697. One option for you would be to make a personal deductible concessional contribution, which would be tax-deductible and any tax saving would then be reflected in your tax refund after you have lodged your tax return.

Question

I am 65, retired, and my wife and I live off my super as an allocated pension income stream drawn fortnightly. I will reach age pension age in March 2023, does my super allocated pension form part of the assets test for a pension.

Answer

Money in superannuation counts once you reach pensionable age, but can also be counted before you reach pensionable age if you are drawing an income from your superannuation fund. It would seem that you are already drawing an income from your fund so it may be worthwhile getting advice to see if you should convert that fund back to accumulation mode. You could always make withdrawals as needed.

  • Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. Email your money questions to: noel@noelwhittaker.com.au
This story Increase in payment welcomed by age pensioners first appeared on The Canberra Times.