“We are a couple on the pension but have a shared asset with a third party and would like to sell this asset which means we would have $350,000 cash to place in the bank and use for renovations and personal expenses. We are currently not over the assets test, nor would we be with the cash from the sale, but would Centrelink reduce our pension payments anyway?"
-Question from Tony in Melbourne
Top answer provided by:
Dishna Wijenayake
Hi Tony,
As you are receiving the age pension already you would be aware of the asset and income test limits highlighted below;
Asset Test
As a couple, to qualify for the full pension your combined asset limit should be below $405,000 if you are a homeowner. Alternatively, if you are not a homeowner, the limit is $621,500. Further, as you would be aware the home you live in is an exempt asset for homeowners.
Your pension payment will reduce by $3 a fortnight for every $1,000 over the limit. This is called the ‘taper rate’. From 1 July 2021 part pensions cancel when assets go over cut off points shown below;
For simplicity purposes, let’s assume that you are a homeowner. You mentioned that you would be under the asset test even with the additional $350,000. A point to clarify is with this additional amount, would you qualify for the full pension? (i.e. total assets under $405,000). Or are you referring to the pension cut-off point? (i.e. $901,500 as shown above for a homeowner). If the asset total is under $405,000, no impact on the asset test as you have pointed out. However, if the asset limit you are referring to is the cut-off, then for every $1,000 over $405,000 a $3 reduction would apply to your pension payment.
Income Test
At present for a couple living together below income rates apply;
As shown above, if your fortnightly income is over $320, a 50 cent reduction would apply for every dollar over $320. Once your combined fortnightly income exceeds $3,297.60, pension payments would stop.
Deeming
Deeming is the method Centrelink use to calculate income from your financial assets. Once this asset is sold, proceeds would form a part of your financial assets. The current deeming rate for a couple on the age pension is shown below:
- The first $89,000 @0.25%
- Anything over $89,000 @2.25%
Therefore, income from these additional funds would be calculated based on deeming rates shown above and would be counted towards your income test. If your total fortnightly income is over $320, a 50 cent reduction would be applied to every dollar over $320 until you reach the cut-off point listed above.
(Note- If investment returns are higher than the rates shown above, the extra amount would not count towards your income.)
As you mentioned, if you are intending to use a part of these proceeds to renovate your current home, this would reduce your assessable assets and in turn your assessable income. Using these funds to reduce debt secured against exempt assets (i.e. mortgage against the family home) will also reduce your assessable assets and assessable income respectively. Apart from the above, you are allowed to gift $10,000 per annum or $30,000 over a period of 5 years (can’t be more than $10,000 in a single financial year). Funeral bonds and lifetime income streams are other strategies that can be used to effectively manage your assessable assets and assessable income.
To conclude, whether this transaction would impact your pension payments would depend on a few factors as discussed above. There are strategies available to effectively manage the impact. I recommend carefully reviewing your current retirement plan in line with these changes and speaking to a financial adviser.
(source: https://www.servicesaustralia.gov.au)
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