Know your limits

We all know the importance of having regular health checks with our doctor or having our car serviced at least every six months. However, how frequently do we check to see if we qualify for Centrelink benefits?

If you retired a few years ago it could well be worth checking to see if you are now eligible for the Age Pension. The reason for this is that over the last three years, given the poor performance from the world’s equity markets, the value of your assets may well have fallen. At the same time, the Asset Test limits have continued to increase broadly in line with inflation.

Today, if a couple own their own home they can also own other assets (e.g. real estate other than the home, financial investments, motor vehicles etc) of up to $1,018,000 and potentially still qualify for a part Age Pension. Of course, if the couple qualify for even a small part Age Pension, they would then be entitled to the Pensioners Concession Card. This card entitles the holder to reduced cost medicines under the Pharmaceutical Benefits Scheme as well as various other concessions like reduced utilities, rates and travel costs.

As an example, consider Bill and Mary who retired back in October 2006. At that time they were both members of their own self managed super fund (SMSF) which had a total value of $830,000. They have been drawing a combined annual income of $60,000 from their fund. They also owned a car worth $40,000 and had $30,000 in a bank savings joint account. With a combined asset base of $900,000 they were well over the Asset Test limit at that time, which was $516,500, and therefore didn’t qualify for the Age Pension.

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However, fast-forward to today, and the situation has changed significantly. Bill and Mary’s SMSF now has a total value of $640,000. This reduction in value is because of poor investment returns and the drawing of a regular income to meet their living expenses. Their car is now worth $20,000 and they also have other financial assets worth $40,000. With a combined asset base of $700,000 they are now well below the Asset Test limit of $1,018,000 and may well qualify for at least a part Age Pension along with the Pensioners Concession Card.

The current maximum combined Age Pension for a couple is $29,354.00 p.a. (including the pension supplement). Under the Assets Test this is reduced by $39 p.a. for every $1,000 above $265,000 (for a couple who are homeowners). Therefore Bill and Mary could be entitled to a part Age Pension of $12,389.00 p.a.

This part pension, along with the Pensioners Concessions Card, would go a long way to helping them protect their remaining existing capital and enjoy a more comfortable retirement together.

Richard Shermon, Reserve Financial Consulting

Reserve Financial Consulting is a financial planning business helping busy families in the Bayside area to secure their financial future. The business specialises in providing quality financial advice to clients in the areas of Investments, Insurance, Superannuation and Pensions.

Reserve Financial Consulting manages over $20m for clients’ superannuation and investment portfolios.

Richard Shermon is the Managing Director of the business and has over 20 years’ experience in the financial services industry after graduating from Oxford University with a first-class honours degree in Mathematics in 1987. He qualified as an Actuary in 1990 and is a Fellow of the Institute of Actuaries. He is also a non-executive director for NTUC Income, a leading insurance company in Singapore, and a board member of the Rotary Club of Beaumaris.

Important information.

This article has been prepared to provide you with general information only. It is not intended to take the place of professional financial and taxation advice and you should not take action on specific issues in reliance on this information. In preparing this information we did not take into account the investment objectives, financial situation or particular needs of any particular person. The case studies in this article are hypothetical and are not meant to illustrate the circumstances of any particular individual. Before making an investment decision, you need to consider (with or without the assistance of an advisor) whether this information is appropriate to your needs, objectives and circumstances. You should obtain a copy of the relevant Product Disclosure Statement (PDS) before making a decision to invest in any financial product. This information is provided for persons in Australia only and is not provided for the use of any person who is in any other country.

The Salisbury Group Pty Ltd: ABN 51 089 332 918 AFSL 225 379

Reserve Financial Consulting Pty Ltd: ABN 85 138 151 738: AR no: 340004