Ask An Adviser - Will My Pension Payments Be Affected If I Sell A Large Asset? (3)

Top answer provided by:

Andy Darroch

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Hi Tony,

Your question is interesting and let me preface, there’s a lot of elements here, so I’m going to have to slather my response with an indemnity that small differences in interpretations of this could result in the outcomes being very different.

But, so we can at least give you some answers, let me answer: if the $350,000 is already counted in your assets test, I would suspect it won’t affect your pension, however, it might. I’ll get into why it could reduce later, first, let's get into all of the interesting assumptions and disclaimers on my end.

• We are talking about the Centrelink Age Pension.
• You’re going to sell an asset, and you’re going to receive $350,000 in cash proceeds.
• By the use of we, you’re a couple in the eyes of Centrelink.
• Even with the $350,0000 in cash, you think you still won’t be over the assets test, now, this could mean for the full pension or this could mean for the part pension, I’m going to assume you’re already counting the $350,000 in assets, as it sounds like it should have been…..
• By your use of the word renovations, I’m going to presume you’re homeowners.

Your answer

Ok, so, first things first, the age pension is a means tested. This is made up of the assets test and the income test. The test resulting in the lower pension rate will be the one applied to your personal situation. So, if you complete the assets test and you’re eligible for a full pension, but you then use the income test which results in a reduced pension, well, you receive the reduced pension. So, relative to your proceeds, we need to consider both the assets and the income test. In the last part, I’ll discuss one thing you alluded to, with, say, using it in a renovation and what that might do.

The income Test

Despite the fact your new cash is an asset, in the far-reaching eyes of Centrelink, it’s a financial asset. This means that it is also included for the purposes of the income test. To determine this, Centrelink employ their “deeming rates” or what they ascribe the income from these products to be.

If you’re a member of a couple and at least one of you get a pension, the first $89,000 of your combined financial assets has the deemed rate of 0.25% applied. Anything over $89,000 is deemed to earn 2.25%.

So for your $350,000 – let's for illustrative purposes assume the unlikely event you’ve got no other financial assets (cash, shares, managed funds, etc.). This would give a deemed income of $6,095 per annum ($222.50 for the first $89,000 and $5,872.50 for the next $261,000).

The limit of combined income for a couple to receive the full pension is $320 per fortnight a.k.a $8,320 a.k.a less than your deemed rate ($234). For every $1 over $320 you will each lose 25c of your pensions per fortnight. Now, let’s just confirm one thing, if your pension wasn’t operating as at 1 January 2015 (or in many cases has been but was refreshed etc.), your pension (superannuation) will likely be deemed. Even if your superannuation arrangements are exempt from deeming and are grandfathers, they will still be subject to the income test, just not via deeming rates. The list of assets that Centrelink includes for deeming is extensive and can be found on their site.

The assets test

Here’s the assets test limits as currently prescribed by Services Australia:

Your situation	Homeowner Full Pension	Homeowner Part Pension
A couple, combined	$405,000	$901,500

Now, cash, is an asset, specifically a financial investment. So, we simply add $350,000 to your existing financial assets and we can know.

If you’re receiving a part pension, e.g. you have between $405,000 and $901,500 of financial assets. Now, if you started the year with say, $405,000 receiving the part pension and now you’ve got an extra $350,000, bringing you up to $755,000 – well, yes, you’re going to have a lower pension. The maximum rate of a pension is reduced by $1.50 per fortnight for each member of a couple for every $1,000 of assets over the lower threshold, ergo, you would receive $525 less each per fortnight.

Conclusion

It depends, are you receiving the full pension or part pension, and more importantly, what does your existing assets and income look like. However, for argument's sake, could a homeowner member of a couple who are both receiving the full pension receive a $350,000 cash windfall and not have their pension reduced? Yes, theoretically assuming all that is correct, and they hold no other assets or income that are deemed or assessed by Centrelink.

Renovations

One asset that is not deemed, not assessed, not taxed, not considered by Centrelink, is… you guessed it, the family home, your main residence or PPR (Personal Primary Residence). This includes renovations, so, theoretically, if you were to deploy those funds – again for illustrative purposes let’s say $150,000 – then, only $200,000 or the amount after paying for your renovations would be subject to deeming, asset testing or indeed any kind of consideration from Centrelink.

While the Adviser Ratings Website facilitates the question and answer functionality, all such communications are between users and authorised financial advisers, of which Adviser Ratings has no affiliation. Adviser Ratings is not the advice provider and does not provide financial product advice and only provides information that is general in nature.

Article by:

Andy Darroch

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