Ann warns age pensioners to beware of downsizing

Ann sold her home to downsize and deposited the funds in the bank before buying a new dwelling. She warns that this had implications for her Age Pension.

Beware implications of downsizing

Ann recently sold her home to downsize and deposited the funds in her bank account until she bought a new dwelling. This had implications for her Age Pension and she wants to warns others of her experience. Financial adviser Kane Jiang explains why. 

I sold my home to downsize from four bedrooms and a granny flat, now that I am widowed, mum has passed on and the kids have left home. 

Centrelink subsequently advised that I owed them money because of pension over-payment due to being assessed on my (temporary) bank account before buying another home. 

I disputed this and lost. 

I spoke personally with one of their representatives and it was clearly pointed out to me that while my house sale proceeds have not been assessed as an asset, they have been moved to “income” and assessed at 100 per cent to reduce my pension considerably.

I believed that proceeds from the sale would not be counted as an asset for 12 months. I can't fight Centrelink. I know when I am beaten. I have repaid them the $1300 they demanded (which I cannot afford to do) and now live on a reduced fortnightly pension until my house sale proceeds are cleared from my bank account after my new home purchase. I will be 70 this year and I am not up to fighting “the establishment” any further.

I write this to warn other potential retirees who might be thinking of downsizing.  

Kane Jiang, financial adviser
Without knowing much about Ann’s personal assets and income situation, apart from what she has told us, this seems to me to be a classic misunderstanding of differentiating “assets test” and “income test” assessment.

Yes, proceeds should be exempted as “assets”, i.e., if you sold the house for $1 million (which is not uncommon if you are in Sydney as this is the median price), then your $1 million is exempted in the assets test for the next 12 months or until you purchase your next home.

However, as this $1 million will generally be put into a cash account prior to buying the new home, and cash is also “financial investment”, then this asset will be assessed for the income test.

Using the present deeming rates, the $1 million will be “deemed” to give about $30,000 per annum of income, and would certainly reduce one’s Age Pension entitlement under the income test. 

Are you thinking of downsizing? Were you aware of the potential implications for the Age Pension?

The information contained in this document is general advice only and does not take into account your specific individual circumstances. Please contact AA Financial Planning if you are seeking personal financial advice suited to your particular situation.



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    9th Mar 2018
    Must have had the proceeds in your bank account for quite a while so you should have got some interest income from it
    Centerlink did the right thing
    12th Mar 2018
    It is very important for all pensioners to be aware that they must report to Centrelink any change of financial cash assets circumstances within 14 days of receipt of money greater than $2,000. Be it from sale of a home for purpose of downsizing or receiving an inheritance or cashing in on superannuation funds.
    So if you received a $10,000 deposit you must declare it within 14 days of receipt, but not the full sale price, until the final settlement is banked in your finance account.

    Conversely, if your cash savings reduced by $2,000 or more you should report it to Centrelink within 14 days if you are on part pension and full pension for a pro-rata increase up to your full pension maximum.
    12th Mar 2018
    Whenever a centrelink beneficiary plans to do something which will have an impact on their assets or income, make an appointment with a financial planner to determine what will happen if a particular course of Action(s) is taken. You will get a recommendation in writing which you can rely upon if there is any questions after the particular action is taken. To try and guess the outcome or think you know the rules is just very dangerous and is how this person ended up in a worse situation.
    12th Mar 2018
    Not so, Colonel C'Link deems it from Day One, and their deeming rate is nowhere near the real one - as a deliberate matter of theft.

    It's called insolence of office.
    12th Mar 2018
    That was even the case for my dad when he sold his house and built a new one in 1986
    he was livid as he was one of those that paid that social security tax way back
    So it’s been a rule for a very very long time
    12th Mar 2018
    Perhaps Ann should also disclose how much she received in bank interest to get to her having to repay Centrelink. I bet she is still in front
    12th Mar 2018
    Agree with Tams. Ann should have told Centrelink about the bank interest she had been receiving.
    Occasional Traveller
    12th Mar 2018
    Agree with Tams! That being said, what is the solution for this scenario ie of not having the reduced pension ? Can't see that taking the proceeds in cash and sticking it under the bed as being practical. So like it ( ie in the bank) or lump (sum) it!
    12th Mar 2018
    Wonder if centerlink is as harsh on politicians who rort the system
    12th Mar 2018
    Dont be silly, Ha Ha
    12th Mar 2018
    yep being silly,,these so called po(lies) GET AWAY WITH MURDER??
    13th Mar 2018
    Of course not! They don't have ASSETS and INCOME TESTS anyway, besides getting the large undeserved pensions well before reaching pension age. Until all such seat-warmers are turfed out, they will never consider changing the system - vote them last in preferences.

    This is another very good reason for an Universal Pension without any assets or income tests (all has been detailed earlier) - then all can buy or sell assets whenever they wish, earn extra money, or simply save without being punished - all with Centrelink removed from the picture, saving huge money for the Govt, as ATO can simply pay the Universal Pensions with simple software.
    6th May 2019
    Agree with GeorgeM !!
    Also in regard to :
    ""Using the present deeming rates, the $1 million will be “deemed” to give about $30,000 per annum of income"".
    I havent searched recently but where do you get 3% and with safety ??
    12th Mar 2018
    I have just downsized into a rental home, and put my house on the market to sell, and still paying the mortgage until it sells. I am hoping to make approximately $200,000. I have been to centrelink to explain the situation and they told me that they will assess me once the house is sold. I'm hoping that I'll qualify for rent assistance as the revenue from the sale of my house will be the only money I'll have to live on, plus pension, for the rest of my life. I am now 75 years old.
    12th Mar 2018
    Nanna75: Aren't you setting yourself up for long term problems as rental assistance may not cover your rent over the years?
    12th Mar 2018
    Yes, Keith64 is right... my dad owns his home but it is a transportable and is located in a caravan park/camp site so he has to pay rent for the ground it sits on. The rent assistance covers only about a third of the rent payable. He is 93 years old and has only the aged pension on which to subsist. Paying rent is really not easy on a limited income!!!
    12th Mar 2018
    It would be better to get a boarder in to help with expenses.
    12th Mar 2018
    If and when this house is sold, I will be living part-year in Europe and the rest on a large boat.. I WILL be asking The Good Colonel for rent assistance for dock fees.... these range a bit, but some are $300 a month..... not bad.... and what a pussy catcher living on a boat is....

    (heh, heh)....
    15th Mar 2018
    As a single you are allowed approx. $253,000 in cash and assets so your pension should not be affected unless you have more than that.
    12th Mar 2018
    What to do with the money from a sale when downsizing is almost as complicated as when one looks at downsizing by selling a portion of the land on which one's home is situated. It's a minefield because selling a portion of such a property has a whole set of different rules compared to selling the whole. My experience has been a disappointed and hitherto friendly neighbour when a proposed sale had to be withdrawn.
    It may be worth mentioning that several calls to Centrelink over a separate matter to do with the effect of money received on the pension resulted in different answers, none of which reflected the facts of the matter.
    Occasional Traveller
    12th Mar 2018
    Yes Ashydasher. I was going to say I was puzzled why this article highlighted a problem without at least putting out a suggestion of what to do. Your experience suggests there is no simple solution
    The Pom
    12th Mar 2018
    And you say " I have repaid them the $1300 they demanded (which I cannot afford to do)"
    So your on reduced pension for now, so use some of the interest or principle amount
    You have 1000's in the bank, even after you buy a new house/unit or flat
    you are like most people that have lots in the bank, you don't want to spend any of it
    Just hoard it all so your kids get it when you die
    They will spend it as quick as they get it, they didn't scrimp and save it
    Get real Ann
    12th Mar 2018
    Never thought I would agree with a Pom, but do so, whole heartedly, in this instance. What Ann seems to be suggesting that despite having heaps in a bank account, Centrelink are being 'unfair' in reducing the pension payable to her. You cant have it both ways - that is the whole problem with the debate on pensions in this country - so many oldies want full government support, but want that inner glow of warm feelings knowing they are going to pass on bucket loads of assets to their own next generation. Now I see that as being unfair to the wider community.
    12th Mar 2018
    If she needs that money to buy another home - there is no 'equity' in that lazy cash sitting around in the bank.

    I'd suggest she should only pay Hidden Tax On Pensioners on the interest gained - and not the 'deemed' rort.
    12th Mar 2018
    .. and that should be calculated AFTER she exchanges homes, not before.

    Not that hard - unless the 'government' wants to make it hard on purpose. Thieves are like that....
    12th Mar 2018
    @ Occasional Traveller. I can truly say I've 'been there, done that', as regards problems such as this. Posting advice is not recommended, even advice from Centrelink on the various Acts applied to the subject can be different every time, none of which may even be correct. Fighting for your rights can be expensive because a qualified person is really needed to do it on your behalf.
    It would seem though that Ann was really paying back overpaid pension based on interest received from depositing the results of the sale, in which case she would be well and truly ahead anyway although it may not appear to her in that way..
    12th Mar 2018
    Anne is fine. Her income has to exceed approx $75,000 before she loses all her pension. The interest she is getting and her part pension is plenty to live on. Buy another place quickly. However, if she lost her pension completely and had to reapply, she would lose any grandfathered rules she is currently assessed against. That could mean a real loss of pension!
    12th Mar 2018
    My comment on downsizing is that the main beneficiaries are the property developers, real estate agents, probably the banks and now add Centrelink. Approach downsizing with extreme caution, it may not be the panacea it is made out to be, particularly by the main beneficiaries listed above.
    Lark Force
    12th Mar 2018
    Spot on Eddy, and add to that Retirement Villages. They are a lot of blood sucking mongrels. Con you with rosy images of happy snaps and wonderful lifestyle images all the time conniving to milk you and any offspring's inheritance. And if you have reasonable mobility you will inadvertently become a carer to the less mobile.
    Pay a person to do your maintenance.
    Even the money savvy can get caught lifestyle wise, and financially.
    12th Mar 2018
    Indeed Lark (hmm - interesting history there) - pay someone to do your maintenance. AVEO charges $10 to changea light globe - for $30 I can get an hour's hard labour out of someone in the hot sun and save my back, knees and burnt lung tissue from giving me pain ......

    Damn - I look as fit as a fiddle at 6'+ and 185 kg, but I really can't walk the distance required without pain in the upper chest... and yes, I do have a disability parking card.... and it's mine.

    12th Mar 2018
    By George - a learned treatise on the issue... well done..... incorporates all the issues the learned minds of YLC put forward on those subject some moons ago... I'm so glad a 'taught' monkey can recite the lines as well.

    As usual, the learned wisdom of the Ancients is ignored ad mindless babbling and drooling in their bears, tea and beer (bloody peasants)..... while one word from an 'expert' is lauded to high heaven.... for saying the same.

    Would have carried more weight coming from a Learned professor of something or other.... few studies, bit of research, some fact-finding tours of the world out of funding, and voila! Something the government will listen to....

    We need our own Party........ and no wonder an academic education costs to much when the Learned Professors need to live the high life....

    12th Mar 2018
    Once again I place the argument before you. If that home has not previously been a concession against earnings throughout life, why then is it considered available for this 'hidden tax' NOW, when it is sold?

    I raised that question in regard to 'assets' accumulated through a lifetime of work, and then 'deemed' to be an income strand - when those same assets were paid for out of after-tax income and recouped no tax deductions along the way.

    Same applies here - and yet an 'investment property' or any other 'business asset' upon sale is only viewed in relation to costs and capital gain as reduced, and may, in fact, return NO tax to the government given the bookkeeping/accountancy involved.

    It is clear once again that the PAYE earner and non-business person is punished by our 'government'......

    Come in, Spinners...... (this should draw the crabs out ...heh, heh, heh).....
    12th Mar 2018
    I assume Ann didn’t understand the ramifications of selling her property for her pension. The government has really pushed the idea of downsizing as a means to free up the housing market. The government has made little effort to ensure the ‘downsizers’ realise what it all means. In my street several 94 year olds all on pensions live in big houses on big blocks. They get unsolicited visits from real estate developers at least once a week. None of them explain they’ll lose their pensions etc. Trebor when your new party is set up please ensure that your politicians implement policies that protect the rights of older, vulnerable,people from unscrupulous governments and especially developers.
    12th Mar 2018
    The 'government' was well aware that the moment little old ladies sold their long-standing home, they would cop a 'windfall' and would cop a chop of their pension.

    I said that ages ago when this issue first came up.... how sweet it is to be right all the time.

    In politics, nothing happens by accident - if it happens at all, it was planned that way. - Franklin Delano Roosevelt.

    The 'government' knew all along when it started pushing this line that it would save on 'its' social security bill by robbing old ladies.....

    Again - an asset that has accrued NO tax concession throughout its life, and that includes items paid for out of after tax earnings, such as boats, caravans, Windbags and so forth - are NOT income-generating assets.

    It is appalling that the government, through Colonel C'Link, first chops pension for possessing one's own fully bought and paid for conveniences in retirement, as somehow being an 'income' and thus worthy of pension reduction under the highway robbery of 'assets taper' ....... but the same Colonel C'Link then wants to tax the pensioner again if that pensioner dares to sell that asset, and then deems that this asset, which has never gained a tax concession, is now subject to a hidden tax on retirees.

    This 'hidden tax' is nowhere present in any 'business' accruing assets, all of which are tax deductible, and even in capital gains, any 'business' venture is given a concession.

    And none dare call it daylight robbery of the aged and infirm.
    12th Mar 2018
    ADD:- And of course this 'hidden tax' on a 'windfall' means that old lady has to spend some of that newly-gained money to get by, thus entering the regime of the current government wet dream of forcing pensioners to expend all their assets and live on the streets before they can get a pension.

    Amazing, simply amazing.... and this is the nation we fought and worked for, and sometimes fought against to gain our rights.

    12th Mar 2018
    Would this still have happened if she had put the money in a bickie bin under her bed until the right house came along, within 12 months? Is it because she a) put it in the bank? b) accumulated interest from it?
    Occasional Traveller
    12th Mar 2018
    Not realistic though, taking thousands upon thousand of banknotes home from the bank and shoving it under your bed! No doubt the bank would be reporting you to ATO for making such a withdrawal anyway. Also not a recipe for having a good nights sleep ????

    12th Mar 2018
    After all I've said above - I refer you once more to the nil assets test pension for all and income taxation on income (etc) above that. In the case of a temporary transfer of an asset such as a house to another home, it is a simple enough matter to look at the before and after figures and what is (or is not) left over from the full transaction - not the part transaction where one part is sold pending the purchase of another.

    This is precisely what happened to my ex when she sold a property and was in transit to buying another - after buying the second there was NOTHING left in the till.... but The Good colonel got his pound of flesh (bastards).

    It's really not that hard, and anyone with schooltime mathematics can do it... yet our 'government' deliberately makes it hard.
    Deb Dickman
    12th Mar 2018
    We put our house on the market last year to downsize, unfortunately the property has not sold. Prior to doing this I consulted Centrelink to establish our position and was clearly told that the proceeds from the sale of the house would not be counted as an asset for 12 months but would be deemed for interest.

    12th Mar 2018
    Could Ann have left the funds with her solicitor in his/her Trust Account?
    13th Mar 2018
    In that case expect The Good Colonel to label it an asset. Now way The Guv would miss out.
    12th Mar 2018
    I think I may be caught in the same trap as the information I got from Centrelinnk was the same as Ann but have now bought my new home and by the time the repairs are done will just be at the allowable asset limit. Have tried ringing Centrelink to confirm and never seem t get through and the Gov acc is useless! I did though get told I could get a rent allowance waiting for the new home to be settled so if I run into the same problem I will see if they want to pay my rent as the interest earned just covered it. Maybe Ann could query this if she rented looking for her new home?
    ex PS
    13th Mar 2018
    As settlement takes about a month, why not take that time to find your new home and have a subject to sale of the current home as a condition of buying. This way most of your equity will never be put into a bank account.
    To my way of thinking, no one should be charged or deprived of income until it has actually been realized, after that, fair enough. deeming the way this government goes about it, is just legalized theft.
    13th Mar 2018
    Not many sellers will accept a condition (subject to the selling of my
    own home). Most have an idea about a purchase in mind already and would not want to lose the place they have their eyes on.

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