Current market turbulence has a silver lining for seniors seeking the aged pension

Furthermore, the new Labor government has confirmed that the changes to the cut off points for the Commonwealth Seniors Health card (CSHC) that were promised by both parties prior to the election will be going ahead.

The new thresholds, together with the fall in many retirees' assets because of the current market turbulence could mean that many pensioners will enjoy an increased pension - others who were ineligible may now qualify for a part age pension and all the goodies that go with it.

The age pension is a major source of income for the majority of Australian retirees. A bonus is that eligibility for a part pension gives them access to most of the pension's fringe benefits, including the prized Pensioner Concession Card, even if their age pension is only minuscule.

Eligibility is tested under both an income and an assets test, and the one that produces the least pension is the one used. There is age pension calculator and a deeming calculator on my website www.noelwhittaker.com.au.

You might also like:

Thanks to the changes the cut-off point for the assets test for a homeowner couple has gone up to $915,500, for a single $609,250.

Your own home is not assessable - your superannuation and other financial assets are asset tested and also subject to deeming for the income test.

Your furniture fittings and vehicles are assets tested. Many pensioners fall into the trap of valuing them at replacement value.

This could cost them heavily because every $10,000 of excess assets reduces the pension by $780 a year.Make sure these assets are valued at garage sale value, not replacement value.

This puts a value of $5000 on most people's furniture.

Withdrawals from your superannuation are not treated as income - the value of your superannuation is deemed for the income test. Just keep in mind deeming is only relevant for income tested pensioners. If you are asset tested income is irrelevant.

Most wealthier pensioners are asset tested, yet I keep receiving emails from them asking if it's okay to earn some more money.

Of course it is -the income test is not relevant if you are asset tested. A couple with assets of $800,000, receiving a pension of $172.90 a fortnight each, could have assessable income of $65,000 a year including their deemed income, and employment income, without affecting their pension because they would still be asset tested.

There is no penalty for spending money on holidays, living expenses and renovating the family home. But don't do this just to increase your pension.

Think about it, if you spend $100,000 renovating your home your pension may increase by just $7800 a year - but it would take almost 13 years of the increased pension to get the $100,000 back.

Of course, the benefit of money spent should be taken into account too - money on improving your house, or travelling could have huge benefits for you. The main thing is not to spend money with the sole purpose of getting a bigger age pension.

You can reduce your assets by giving money away, but seek advice. The Centrelink rules only allow gifts of $10,000 in a financial year with a maximum of $30,000 over five years. Using these rules you could gift away $10,000 before June 30th and $10,000 just after it, and so reduce assessable assets by $20,000.

If you are a little over the asset cut-off point, you could reduce your assessable assets by purchasing one of the lifetime income streams I have discussed previously.

The benefit is that only 60 per cent of the purchase price is assessed for the assets test. For example, $300,000 invested in one of them would reduce excess assets by $120,000 and give eligibility to a part pension, as well as the income itself from the product. Your financial adviser will be able to give you more details.

The bottom line is, you'll probably find your pension is increasing next week. Just go to my website and do the calculations for yourself.

Question

Thanks to the easing of the eligibility rules for the Commonwealth Seniors Health Card (CSHC) I feel I may become eligible on 1 July. I notice that Adjusted Taxable Income is a major factor in eligibility criteria. In my case I had a one-off capital gain in the current financial year, which may well take me over the $144,000 limit income for the card.

However, my income for the forthcoming financial year will be much less than that. Will Centrelink take a reasonable view because this was a one off event.

Answer

Services Australia tell me that to be eligible for the CSHC you must meet certain criteria including an income test. The income test will look at adjusted taxable income for the relevant financial year and a deemed amount from account-based income streams.

Where an applicant's previous financial year's income is above the CSHC income limits, and the applicant can show that the source of the increased income is of a "one-off"; nature then, subject to certain conditions, the applicant may give an estimate of their income for the current tax year. This can be done at the time of applying for the card.

Acceptable conditions for using an estimate of income for the CSHC income test are limited to situations where the applicant can demonstrate that a change to their personal circumstances has occurred through retirement, ill health, or another one-off event and that because of the change, their most recent financial year's income assessment does not reasonably reflect their current level of income.

Keep in mind that anybody currently in receipt of the CSHC who has a change in their circumstances needs to advise Services Australia within 14 days of the change. They can do this through their online account or by phoning 132 300.

Question

I'm a single asset tested pensioner who receives a part pension. I understand the asset threshold is increased every 1 July. Do you think it will increase this coming July?

Answer

The asset test threshold is due for indexation on the 1st of July and the rates are normally announced about a week prior to implementation. Given the high rate of inflation it may be a bigger rise this time than previous increases. Watch this space.

Question

I have a home valued at $1.1 million and rather than downsize or consider a retirement village or the like - because my current small home is well located to access services into my old age - so a reverse mortgage would seem to possibly answer my current needs.

I am 72 years old and feel I only need to have a buffer of savings, say, around $50,000, certainly no more than $100,000. Could you indicate a ballpark figure of what would be the likely accumulated interest incurred at today's rate if I was to live to, say, 90 years old.

Answer

I see no point in your taking out a reverse mortgage of say $50,000 just to give yourself a savings buffer. I suggest a better option might be to use the government's Home Equity Access Scheme whereby you could can get a voluntary non-taxable fortnightly loan from the Government using your real estate as security for the loan. This scheme has an interest rate of just 3.95 per cent. The Compound Interest Calculator on my website will enable you to run any calculations you wish about what the debt would grow to on various scenarios.

For example $50,000 over 18 years at 3.95 per cent would grow to $100,000.

Question

I inherited my mother's house in 2019 valued at $2 million. It is currently being rented out. It was originally purchased in the 1960s so there is a CGT exemption. It was where I lived for many years as a child and many times during my young adulthood. I am nearing 60 years of age. Can I sell this property and make a one off contribution to super $300,000 post July 1, 2022? I own my own home but would much rather sell my mother's house than sell my own house to make a contribution. Or are there alternative ways to make large contributions to super when I reach 60?

Answer

Anybody can make contributions to superannuation now till age 67 without passing the work test. Once the house is sold you can make a non-concessional contribution to super of $330,000 using the bring forward rules, and in three years time make another similar contribution.

This of course assumes that your superannuation is not in excess of $1.7 million because no non-concessional contributions are allowed once that figure is reached. You are unable to use the "downsizer" rule to make up to $300,000 as a downsizer contribution as the property has never been your main residence as an adult.