You may recall a few months ago, I wrote a post titled “The Safety Net”.
The issue of a person’s right to receive an age pension has once again made headlines in the media, as a result of the budget and the proposed changes to the age pension’s assets threshold, due to take effect from the 1 January 2017.
I am not going to bore you with all the details, but suffice to say those age pensioners with minimal assets will see an increase and those age pensioners with assets above a certain level will either see a reduction in their pension or for approximately 90,000 the loss of their entitlement to a part pension.
I have read a number of media articles raising the concern that people who are or will be approaching retirement in the future may look at their assets and then look at the proposed reduced asset threshold and believe that they have a right to the age pension or will not be able to survive their retirement without the age pension. Then, they start to give their assets away.
If you are contemplating this idea – don’t do it!
To give you an idea of what you are giving away and what you are getting in return, let’s have a quick look at an example of a couple who own their own home and have $1,000,000 in savings, superannuation and assets.
Under the proposal the couple would not be entitled to an age pension because of the level of their assets. To ensure that they did have an entitlement, they would need to reduce their assets to below $823,000. The amount of age pension paid at this level based on the current figures would be $51.80* per fortnight combined or $1,346 per annum.
The difference in the level of assets for our fictitious couple to be entitled to the age pension is $177,000, which if deposited into a term deposit even with today’s low interest rates would return an amount in excess of $4,500 per annum.
Now I am not the brightest person, but I do not see any sense in giving away assets which could provide you with an income of $4,500 per annum in exchange for an income of $1,346 per annum and that is in today’s low interest environment. If interest rates increase to just 5%, the difference is even greater.
Now the other downside to this idea of giving away assets to ensure you have an age pension entitlement is that you need to ensure that you do so 5 years before you apply for the age pension. If you give the money away just prior to applying for an age pension the amount in excess of $10,000 will be maintained and assessed as if you still have the asset for the next 5 years – defeating the whole purpose of the strategy.
I would suggest even if you do get the timing right, 5 years is a long time and a lot can happen especially from a legislative point of view.
Remember just because your assets are above the threshold when you turn age pension age does not preclude you from applying for the age pension in the future when the value of your assets have reduced below the necessary thresholds.
You have a right to enjoy the benefits of your accumulated assets, don’t waste them by giving them to your children. The Age Pension is not paid to enable a larger pool of assets to pass to the next generation.
Remember the changes are proposed and have to be passed by parliament – so do not make decisions based on this “legislation” at this stage, make sure you do talk to an expert before you act.
I wrote this blog a couple of days prior to the official Budget announcements, I awoke Wednesday morning post-budget to watch someone on television talking about what you need to do ensure you retain your pension as a result of the proposed changes to the asset limits – buy a bigger, more expensive house?
I have written about this before, remember buying a larger house in retirement means more work and more expenses. To me, it just does not make a lot of sense.
*This payment is in fact the minimum pension supplement that would be payable until your assets breached the asset thresholds.7