The rules surrounding Centrelink entitlements are quite complex. It is therefore extremely important, when developing retirement strategies, to be mindful of the Centrelink implications.
Most people are aware that the Age Pension is means tested based on both income and assets. The tests have different thresholds for individuals and couples and also differentiate between home owners and non-home owners.
The asset tests allows a base level of assets that entitle you to a full pension (this amount differs for singles, couples, homeowners and non-homeowners) and decreases if you exceed this amount. Sounds straightforward. The complexities arise on which assets count as an asset and which assets are exempt.
One area that is confusing is granny flats and what becomes assessable in these circumstances. There are specific guidelines dealing with granny flats and how assets are treated. If you have given up assets in exchange for the right to live in a property you do not own, it is best to get advice in relation to your specific circumstances.
Life interests and retirement village contributions also have specific guidelines in how they are assessed. Again, this is a specialised area where it would be beneficial to seek advice.
The gifting of assets is one of the most common areas of discussion. I’m often asked why a client can’t give away their own money if they choose. Well, you can give away as much of your money as you like, but, if you do so, Centrelink is going to treat a portion of what you have given away as an asset. This is known as deprived assets. You are able to give up to $10,000pa and up to $30,000 over any five-year period and have those assets no longer count to your assets for testing purposes. Selling an asset for less than a “reasonable value” or paying more than “reasonable value” will also be deemed deprivation of assets.
Your residential property is exempt for assets test purposes, but so are any liabilities associated with your residential property.
Superannuation assets do not count until you reach Age Pension age. This provides an opportunity if one member of a couple is significantly younger (even a year or two). During the period where only one member of the couple is of Age Pension age, by placing a significant amount of your assets in the younger person’s superannuation, you will decrease your assessable assets and increase your superannuation entitlements.
The assets test is complex, and should be considered when formulating strategies for your retirement.
Alex McKenzie, Future Financial Services
Alex McKenzie is a financial planner, and the owner of Future Final Services in Penrith. He is a graduate of Western Sydney University.