The Sunday Mail (Queensland)

Retirement mistakes can prove costly

- Noel Whittaker noel@noelwhitta­

Welcome to the second part of our series explaining the tricks of the age pension system. Remember, you are tested under both an income and an assets test, and the one that produces the least pension is the one used.

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 single person with assets of $540,000 receiving a pension of $136.70 a fortnight could have assessable income of $45,000 a year including their deemed income, and employment income, without affecting their pension because they would still be asset tested.

Your own home is not assessable, but 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. 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. Each year on 20 March and 20 September Centrelink values your market linked investment­s, such as shares and managed investment­s, based on the latest unit prices held by them.

These investment­s are also revalued when you advise of a change to your investment portfolio or when you request a revaluatio­n of your shares and managed investment­s. If the value of your investment­s has fallen, there may be an increase in your payment - if the value of your investment­s has increased, then your payment may go down.

The rules are in favour of pensioners. If the value of your portfolio arises because of market movements you are not required to advise Centrelink of the change, it will happen automatica­lly at the next six monthly revaluatio­n. However, if your portfolio falls you have the ability to notify Centrelink.

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. There is devil in the detail. If a member of a couple has not reached pensionabl­e age it’s prudent, if appropriat­e, to keep as much of the superannua­tion in the younger person’s name because then it is exempt from assessment by Centrelink.

However, the moment that fund is moved to pension mode, it’s assessable irrespecti­ve of the age of the member. A common trap is when a loan is used to purchase an investment property with the loan secured by a mortgage against the pensioners own residence.

The principle is that a debt against an investment asset is not deducted from the asset value, unless the mortgage is held against the investment asset. If the mortgage is secured against an asset other than the investment asset the gross amount is counted for the assets test and the loan is not deducted. The effect on the pension could be horrendous.

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