A few weeks back we highlighted the looming changes to the aged pension assets test that would come into force from the 1st of January 2017.
This week we’ll look at a few minor strategies, with minor being the key word if a pensioner is borderline with regards to pension eligibility. There has been some angst out there regarding these pension changes. Look around the internet and you can find angry pensioners floating some dubious ideas to maintain their pension eligibility.
On the extreme side, there have been pensioners talking of knocking down a house to build another (while living in a caravan on site for 18 months!), massive extensions and wholesale renovations, or just buying a more expensive house.
All these ideas are taken from a standpoint of an investor not wanting to risk capital to achieve a return. This ignores that in many parts of the country house prices have never been higher (along with the associated debt levels). While in other areas house prices are weakening due to the end of various booms.
Everyone wants to take less risk the older they get, but from an investment position these ideas are dubious for one reason – they all involve essentially spending several hundred thousand dollars that may not be realised in the same value at a later date. Not to mention these ‘strategies’ are taken because the investor doesn’t want to take market risk and potentially suffer a decline in the value of their asset base.
Note the contradiction here – churning through a significant amount of money and potentially overcapitalising on a house to get extra pension payments is regarded as no risk, but investing and enduring possible market volatility to achieve an income stream is regarded as high risk!
There are some options that don’t have to wipe out hundreds of thousands in capital and they may provide some actual value and maintain access to pension payments.
Smart renovations – ie. renovations you may have done anyway because your house requires them, or a renovation that may make your residence more practical for your needs as you age. There may be other improvements that slightly lower an asset base, while also providing some financial relief in other areas, like solar panels.
Gifting – this is a strategy that may be better to start in advance of hitting pension age, as it should be remembered there is a $30,000 five-year aggregate or a maximum of $10,000 that can be gifted in any one year.
Asset Transfer to younger partner’s Superannuation – this works when one partner is younger than the other and the superannuation of the younger partner is not included in the assets test if they are not of pension age. Putting some assets into the younger partner’s superannuation account means Centrelink will still assess combined assets, but will exclude the younger partner’s super balance.
Prepaid Funeral – this is as it suggests, a prepaid funeral isn’t assessable by Centrelink under the assets test, so it’s another way to lower assets to maintain pension eligibility.
Take a holiday – probably not the best strategy unless it was already seriously considered, but we all need a break!
As we’d always suggest – talk to your adviser first to figure out the best strategy for you.
This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs.