While honesty is the best policy when it comes to dealing with the government, there are a few simple ways to maximise your Age Pension or part payment.
Your eligibility for the Age Pension is assessed using two methods, the assets test and the income test, which are combined to determine if you are eligible for the pension and how much your payments will be.
The assets test takes into account all your assets, including personal assets such as cars and jewellery, and the income test assesses what income you have outside the pension, including such things as interest on bank accounts and returns from shares.
Here are a few tips to maximise your returns from the Age Pension.
Review your personal assets
How long has it been since you valued your personal assets? Centrelink views such items as jewellery, laptops, cars and boats as personal assets that go towards the assets test.
While you might have been valuing these under ‘replacement’ value in your insurance, i.e. the cost it would incur to replace the item, Centrelink is only interested in the market value, or what you could reasonably expect them to fetch at a garage sale, eBay or Facebook Marketplace.
The difference in the two values can be quite considerable. Start looking online at similar items to see what price they are fetching. Sadly, antiques and collectables have lost a lot of value over the past decade or so, but their lower value might help towards your payments.
And vehicles and electronics depreciate very quickly, so once again it might be worth heading online to check their resale value and updating their worth every year.
In some cases, while you might not be eligible for the Age Pension upon retirement, it’s quite likely as you age, and the value of your assets age, you might become eligible for the pension or part payment.
Renovate your home
As your principal home is exempt from the assets test, it pays to move money into it. If you have cash in the bank, it could be beneficial to spend it on renovations. This removes the cash from being assessed under the income and assets test. In the long term, spending the money now could also be a good investment to avoid future maintenance costs, including making it more suitable for senior living.
Give it away
If you can afford it, giving away money can be a canny strategy as once again it reduces the amount available under the Centrelink assessment guides. However, there are some very strict rules about gifting on a pension. You can only give away $10,000 in one financial year or $30,000 over five financial years, which can’t include more than $10,000 in one financial year.
But think very carefully about this strategy as it may set up expectations among family and friends that you are little more than a walking ATM. Be clear about your boundaries. Also, as people live longer, many people are underestimating how much they need for retirement costs, so it could be more advisable to save the money for later.
If one partner is eligible for the Age Pension and the other isn’t due to their age, and are still working, you may be able to shift some super to the younger partner’s account, thus reducing the amount of money that can be assessed for pension payments. However, there may be some tax implications and it’s worth getting some professional advice before you go down this route.
No-one takes any joy in this, but putting feelings aside and prepaying your funeral can have financial benefits, and not just for those left behind. Funeral costs paid in advance don’t normally count towards the assets test. You will need to meet a number of conditions, but it could have the double appeal of giving peace of mind in the future that your funeral will be covered and increase your pension payments. Talk to a financial planner or funeral director about options.
You could also invest in a funeral bond. A funeral bond is an investment offered by a friendly society or life insurance company to allow you to set aside money to cover your funeral costs.
A funeral bond provides benefits only upon the death of the nominated person and cannot be accessed earlier.
According to Services Australia, your funeral bond won’t count as an assessable asset if any of the following occur:
- you have assigned it to a funeral director
- it’s for fully prepaid funeral services
- you have a contract that sets out the services and says they’re paid in full
Centrelink won’t include the value of up to two bonds as long as:
- you don’t also have prepaid funeral expenses
- the amount you’ve invested in the bonds is under the Funeral Bond Allowable Limit.
The current limit on funeral bonds is $13,500.
Centrelink also doesn’t include the cost of a burial plot in the assets test no matter its value and you don’t have to inform Centrelink you own one.
Pay down your debts
Story Wealth management senior financial planner Anne Graham told canstar.com that most debts are not offset against assets for means testing.
“So, if you have a loan secured against your home or even credit card/personal loans, it makes sense to pay down debt,” Ms Graham says.
Most people think that once they are eligible, they can apply for the Age Pension, which of course you can, but it’s not backdated to your eligibility date. Payments start when you lodge the claim, not when you are eligible. You can apply 13 weeks before you are eligible and payments can start as soon as your turn the correct age. It’s a good idea to start early anyway as the process can be complicated and time-consuming.
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