Using super to pay out mortgage

Jenny is considering retiring, but she would like to know if she could use her super to clear the balance on her mortgage and still get an Age Pension.

Q. Jenny
I have a question for you and I hope you can help me. I’m 65 and would like to retire. I have only $95,000 in my super account and no other assets other than a house which has $70,000 still owing to the bank. It is an old house and needs a lot of repairs. Upon my retirement I intend to use this money as a lump sum to pay off my house so I don’t have this burden over my head. Can I do this and, if so, how will it affect my government Age Pension? Someone just told me that Centrelink would not give me any pension if I do this. If this is true, I don’t know what to do anymore.

A. Provided by Human Services
The balance of a superannuation fund is assessed as a financial asset unless the customer is under Age Pension age, in which case it is not assessed. The net value of their home is not included in their asset test calculation, provided the home is not used for business purposes or is on land that exceeds two hectares. So, the amount of the outstanding mortgage is immaterial.

If funds are withdrawn from a superannuation fund prior to claiming a payment, this will only affect future payments if they are gifted to another person. Otherwise your claim will be assessed using the balance of the superannuation fund, in the instance where the claim is made after Age Pension age has been reached, and other assets at the time.

If a current customer, who is under Age Pension age, draws on their superannuation fund, this realised amount will normally be assessed. But if it is used to pay off their mortgage or improve the value of their house, both the assessed values of the fund and the house will remain as nil and the rate paid to the customer will not change. If a current pensioner, who is already Age Pension age draws on their superannuation fund to pay off their mortgage or improve the value of their house, the assessed value of the fund would be less, as would the total assessed value of all their assets.

Transferring superannuation funds to pay off a mortgage may be financially advantageous for some customers, especially those over Age Pension age who are income or asset tested. However, we suggest that customers contact the department to discuss their personal circumstances.

Please consider contacting the Department of Human Services on 13 2300 to discuss your circumstances.

Written by Debbie McTaggart