Noel Whittaker's Blog Superannuation is an exempt asset for Centrelink purposes until the owner reaches pensionable age or until they start a pension from it. 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 regulations say 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.
Family trusts can cause problems with both income and assets tests for the age pension. Thanks to the information sharing and matching abilities between Centrelink and the ATO, you can bet that Centrelink will know if a family trust is involved in your affairs.
Even if you have a high risk child who makes Mum the appointer or default beneficiary for asset protection and there is no “pattern of distribution,” Mum could be caught.
It’s a complex topic. If there is a family trust somewhere in your financial affairs, I suggest you take expert advice long before you think about applying for the age pension. It may pay big dividends.
Bequests are another trap. There is a big difference between the asset cut-off point for a single person and that for a couple. As at 20 September 2021, the single homeowner cut-off point was $593,000, whereas for a couple it was $891,500. Many pensioner couples make the mistake of leaving all their assets to each other, which can cause a lot of extra grief when the surviving partner finds they have lost their pension as well as their partner.
Example Jack and Jill had assessable assets of $740,000 and were getting around $11,800 a year in pension. Jack died suddenly and left all his assets to Jill. This took her over the assets test limit for a single person and she lost the pension entirely. Had he left the bulk of his estate to their children she would have been able to claim the whole pension plus all the fringe benefits.
A wrong decision in the past can have a serious consequences in the future. Think about a couple aged 52 who wanted to help their daughter into her first home. Without taking advice they bought a 50% share of a house worth $400,000 so that the daughter could obtain a loan. Fast forward 15 years when the house is now worth $900,000 of which their half share is $450,000.
Their other financial assets were worth $600,000 so they believed they would be eligible for a part pension. To the horror they discover that their equity in the daughter’s home of $450,000 took them over the assets test cut off point. If they transferred their share to the daughter the capital gains would be $125,000 after discount, on which capital gains tax could well be at least $50,000.
Furthermore, they would have to wait five years to qualify for the pension because Centrelink would treat the $450,000 as a deprived asset for the next five years. The total value of the CGT payable and the pension lost could be at least $150,000. If they had been aware of the trap, or taken advice, they could have gone guarantor for their daughter, possibly putting up their own home as part security and this would have had no effect on the future pension eligibility.