How to avoid the pitfalls of downsizing and keep your pension

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John has bought a new home as the first step in downsizing and wants to know if his bridging loan will affect his Age Pension payments.

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Q. John
My wife and I have purchased a smaller home as the first step in downsizing. We have our current home on the market now. While it is possible, it is looking unlikely that the sale of our current home will be settled before the settlement of our new home. That means we will require a period of bridging finance. This will also mean that for a short period of time we will probably own two homes. We intend to maintain our current home as our principal place of residence until it is sold. What effect, if any, will this have on our Age Pension?

A. You are taking out a bridging loan, and this is not the same as owning the second home. You just have a loan for a similar amount to what the house you’re buying will cost you. This will not increase your assets as they will be negated by the liability.

Your pension payments should be unaffected as you are staying in your current property until the sale goes through.

It is important to note that once you do sell your current home and close the loan account, any extra money that you have left over will be assessed immediately.

All proceeds from the sale that are held as financial assets are deemed to be earning income. Any deemed income will be assessed under the income test, which may affect your Age Pension payment. Your Age Pension payment is reduced by 50 cents for every dollar that exceeds the income test threshold.

Any amount left over is also considered an asset and will be assessed as such. Your Age Pension payment is reduced by $3 for every $1000 that exceeds the assets test threshold.

There is, however, the option that if you have owned your current property for more than 10 years to make a non-concessional contribution to your super of up to $300,000 or $300,000 each, if both you and your wife are over 65.

To take advantage of the downsizer contribution, the money needs to be moved into your super account within 90 days of settlement.

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Written by Ben

5 Comments

Total Comments: 5
  1. 0
    0

    The effect on the pension will depend on the security for the bridging loan. If it’s secured against the family home and they remain there until it’s sold, then the full value of the second property will be assessed and pension likely affected. Need to be careful. The banks of course will want security over the family home as it’ll be worth more and they know they will get the money back if something goes pear shaped.

  2. 0
    0

    Do not buy a place before you sell your current one, it might take a while and you might not get what you anticipated for it. We rented for a few years after selling our city place and it took us a while to find something we liked. Bridging finance is not cheap, remember!

  3. 0
    0

    I don’t understand how being able to contribute $300,000 into Super (which is a financial asset) negates deeming for people on the Pension.

    • 0
      0

      It doesn’t negate neither the asset placed into super, nor the deeming assessment. Just one of the effects of those wanting retirees to sell the former home

    • 0
      0

      It doesn’t negate neither the asset placed into super, nor the deeming assessment. Just one of the effects of those wanting retirees to sell the former home


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