Winter windfall a wonderland for retirees

CHRISTMAS has come early for many retirees, with both the age pension cut-off points and the deeming rate thresholds increasing from July 1. Furthermore, the new Labor government has confirmed the changes to the cut-off points for the Commonwealth Seniors Health card promised by both parties before the election will go ahead.

The new thresholds, together with the fall in many retirees’ assets because of the current market turbulence, could mean 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.

Eligibility is tested under both an income and an asset 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.

Thanks to the changes, the cut-off point for the asset 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 subject to deeming for the income test. Your furniture fittings and vehicles are asset tested. Many pensioners fall into the trap of valuing them at replacement value. Make sure these assets are valued at garage sale 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 incometested 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 OK 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.

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 asset test. For example, $300,000 invested in one of them would reduce excess assets by $120,000 and give eligibility to a part pension. 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.