House sale may not wind up in pension pay- off

WE are aged 66, have a house worth $ 900,000, plus $ 250,000 in superannuation, $ 30,000 in personal effects such as furniture and motor vehicles, and we also receive the full pension. The house is getting too big for us and we are contemplating downsizing to a property worth around $ 550,000. This would free up around $ 300,000. What would be the effect on our pension if we did this in the light of the budget proposals to encourage downsizing?

The new proposals are of no benefit to you. Once a person reaches pensionable age all financial assets are assessable, whether they are held inside or outside the superannuation environment.

You would be converting part of a non- assessable asset, the family home, into an assessable asset, cash. Your total assessable assets would rise to $ 580,000 and your pension would fall from $ 1339 a fortnight to $ 724 a fortnight. You will need to decide if the increase in income you would receive from having an extra $ 300,000 invested would compensate you for the loss of $ 16,000 a year in pension.

A further factor to consider is what capital gain may take place in your home if you delayed moving for a few more years as your capital ran down.

You may well take the view that the combination of that capital gain and the maintenance of the full pension would outweigh the advantages of moving.

I WAS shocked to read a recent column of yours where a female pensioner sought advice on investing a legacy of $ 20,000. You told her not to put it in super but instead use a bank account “that pays reasonable interest”. Why would you do that when bank term deposits for that amount might earn 2.5 per cent, whereas in super she would get between 6 and 8 per cent?

She would still have access to her funds – and not be taxed on withdrawals, which are liable to tax on them, I believe. I am not ver y financially knowledgeable – maybe there is something I am missing?

It’s important to understand the difference between what a fund has done, and what it might do in the future. Certainly, most superannuation funds have done better than 8 per cent in the last 12 months, but that is because share markets around the world have been doing well. However, if markets fall, superannuation returns could become low or even negative for a period before recovering to positive territory.

Also, if the money were placed in superannuation there would be taxes on its earnings inside the fund of 15 per cent per annum, annual accountkeeping fees, and probably 1 per cent per annum management fees.

In view of her age, and the relatively small sum involved, I still believe that a bank account is the best investment for her in her situation.

Once a person reaches pensionable age, all financial assets are assessable