Many Australians do not realise how much their superannuation can affect their age pension entitlement, but a financial expert has revealed nine simple ways people can legally “hide” their money to boost their payments in retirement.
Superannuation directly affects what your age pension will be, so it is important to understand the process.
Centrelink will examine how much you own and earn, with superannuation assessed under both the income test and assets tests.
As a single homeowner, you can have up to $714,500 in super and still receive the age pension.
If you are a non-homeowner, the limit increases to $972,500.
For couples, the combined super limit is $1,074,000 if you are homeowners, or $1,332,000 for non-homeowners.
SuperGuy Chris Strano says Centrelink will apply both the assets and income tests to your financial situation, then base your age pension entitlement on the lower of the two results.
“In other words, whichever test results in a lower pension entitlement is the one that determines what you receive,” he said.
“For example, if you qualify for the full age pension under the income test, but only half under the assets test, because your assets are too high, then you’ll only receive 50 per cent of the age pension rate.”
Financial planner Katherine Isbrandt, from About Retirement, says there are nine simple things people can do to boost their age pension.
1) Gifting
You can give away a maximum of $10,000 in one financial year, and up to $30,000 within a five-year period.
But Ms Isbrandt warns if you exceed the limit, it is regarded as asset deprivation and the balance above the allowable limit will be treated as a deprived asset.
That means it will be counted under your income and assets test for five years, as if you continued holding the asset.
Examples of gifting include giving your daughter $10,000 to help her with her home renovation, or selling your car to your niece for $5000 while the market value of the car is $20,000.
2) Home exemption
Regardless of its value, your home is fully exempt from the assets test, up to the first two hectares of land it is on.
“Therefore, if you really have lots of assets, and you really want a part age pension, you can buy yourself a new, bigger, better and more expensive home,” Ms Isbrandt said.
“That is one of the easiest solutions, but whether it is the best solution for your overall retirement income needs is another matter.
“If you are renting and have lots in your super or in any other form of investments, then it makes more sense to buy a home, but it needs to be calculated based on your personal situation and your personal income needs as well as your future financial plans.”
3) Renovate your home
If you have spare cash, you could invest some back into your existing home.
“Any money spent to improve your home or repair it will become part of its value (and) therefore exempt from Centrelink tests,” Ms Isbrandt said.
4) Pay off your home loan
Many retirees still have a mortgage against their home, but Ms Isbrandt said people should consider paying off their loan.
“Your mortgage continues to charge you interest … and you have to meet ongoing repayments,” she said.
“But at the same time, your savings attract deeming rates.”
That means your pension benefit could be reduced.
“This is a double whammy loss for you,” Ms Isbrandt said.
5) Pre-pay expenses
Ms Isbrandt said you could pre-pay some of your expenses, such as home and car insurance, as well as your private health insurance and holidays.
“Just think outside the box,” she said.
6) Funeral expenses
“We all know that death and taxes are the only guaranteed things in life, so if you know that death is inevitable, it only makes sense to either pre-pay your funeral of invest into funeral bonds,” Ms Isbrandt said.
“You can invest up to $13,750 per person, or as a couple into a funeral bond. You can have a bond each, virtually doubling the value or the exempt asset up to $27,500.
“In contrast, there is no limit to prepay your funeral expenses.
“For those expenses to qualify, there must be a contract between you and the funeral director, statement that the service has been fully paid for and payment is not refundable.”
But she warned you would no longer have access to that money.
7) Younger spouse super
Ms Isbrandt said it was possible to “hide” money in a younger spouse’s super account.
“Until your younger partner becomes eligible to apply for age pension based on age, the balance of the super will be fully exempt from any test,” she said.
8) Purchase a specific type of annuity
“This is another fantastic idea to legally hide your assets from Centrelink but … you need to know which test affects you the most – income test or assets test,” Ms Isbrandt said.
A lifetime annuity may immediately increase your age pension because only a portion of your investment is counted under the assets test.
9) Special disability trust
Finally, there is a special type of trust for families to place money for the long-term care and accommodation needs for a person with a severe disability.
“Funds could be exempt from assets test, subject to specific rules and limits,” Ms Isbrandt said.
