YourLifeChoices member Tom needs to buy a car, but can’t afford to do this on an Age Pension. Craig Hall from NICRI outlines what will happen to his benefit if he uses his super to fund the purchase.
Q. Tom
I am on the full Age Pension and wish to cash in my super. I don’t have a car and this is why I wish to use this money. It is $12,500. If I cash the superannuation will this be classed as income or asset thereby stopping my benefit?
A. Provided by Craig Hall, NICRI
Superannuation is assessed under both the assets test and the income test if the member has reached age pension age. However under the income test the assessment process differs depending on whether you have converted your superannuation to an income stream (payment phase) or it remains in the accumulation phase.
Firstly under the assets test, withdrawing some or all of your benefit and using those funds to purchase another assessable asset (such as a motor vehicle) will not change the amount of your assessable assets, although as cars usually depreciate the amount assessed for that asset will generally reduce over time.
Under the income test, a ‘full’ lump sum withdrawal (commutation) is not counted as income and as cars used privately do not generate income there should be no increase in your assessable income. In fact the reduction in superannuation will mean a reduction in financial assets under the deeming provisions (if still in the accumulation phase).
It is important to note that if it is a ‘partial’ withdrawal and your fund is in the payment phase, that you specifically withdraw it as a ’lump sum’ or ‘commutation’. In this case the deductible amount (assessment free amount) will be adjusted. Based on the amount mentioned it is unlikely this will have any effect on your pension. If it is not withdrawn as a ‘lump sum’ it is added to the current drawdown amount therefore potentially increasing your assessable income.
NICRI would suggest you confirm this with your fund and the Financial Information Service (FIS) with the Department of Human Services on 132300.
If you require further information on financial matters that may concern senior Australians please contact NICRI toll free on 1800 020110, email nicri@nicri.org.au or write to PO Box 1339, Fyshwick ACT 2609. NICRI information leaflets are also available on its websites www.nicri.org.au © and www.moneymap.nicri.org.au.
