This retirement trick can help you access or increase your pension

Retirees are buying bigger homes to protect their pensions and investments.

This retirement trick can help you access or increase your pension

Say you have had a bumper couple of years, thanks to some wise investments. This windfall could push the value of your assets over the limit for a part Age Pension.

Cashing in the investments and parking the funds elsewhere probably won’t help you avoid the Centrelink razor either, because, wherever your wealth is stashed, it can’t escape an assets test.

Luckily, retirees who have come to rely on a part Age Pension and do not want to sell down the value of their investments do have one handy option – upsizing.

Asset-rich part Age Pensioners approaching the limit beyond which their wealth precludes them from welfare can sell their ‘modest’ homes and liquidate some of their investments. This should help them become sufficiently cashed-up to go hunting for a very lovely home that is worth considerably more than their original one.

As the home you live in is not assessed for the purposes of the Age Pension, it could be worth $300,000 or $3 million. Centrelink couldn’t care less because, at least for now, family homes are not factored into the assets equation.

As the family home is not counted as an asset, it can essentially become a bricks and mortar bank account to be drawn against as needed.

Naturally, the government isn’t keen on retirees being encouraged to buy more valuable homes than the ones they already live in. That perpetuates reliance on welfare by retirees, when what the government is aiming for is to make them become more self-reliant.

That was part of the reasoning behind the government's downsizing initiative to allow retirees to boost their own superannuation funds through a non-concessional $300,000 contribution after selling their house.

If you do decide to upsize, it is worth keeping in mind that, as a general rule, the transaction costs – such as stamp duty and marketing – can swallow up to 10 per cent of the value of the home you are selling.

Would you ever consider buying a property bigger than the one you already live in? Do you think it is fair that pensioners who live in very expensive homes do not have their family home asset tested?

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    COMMENTS

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    Sundays
    9th Jan 2020
    10:07am
    Upsizing does not necessarily equate with bigger in retirement. Seeking a sea change and downsizing to make life easier in retirement cost more than our large home in the suburbs. As a self funded retiree, it had nothing to do with trying to maximise the OAP. I don’t believe the family home should be asset tested by Centrelink.

    9th Jan 2020
    11:08am
    Just shows how stupid Centrelink is in not asset testing the family home. It is so easy to get the full pensions with many millions. Just buy a house and only leave enough assets to qualify for full pension. You then have an income and an asset that increases in value tax free.
    Rae
    10th Jan 2020
    8:17am
    Indeed and it makes you wonder why such an idea is considered appropriate. In the current low yield and highly risky investment environment a better located home that returns tax free yield makes a lot of sense. The $800 000 or so needed to support a typical aged pension and concessions can then be spent for enjoyment instead of the long haul of saving for yourself.
    Farside
    10th Jan 2020
    12:43pm
    I'm pretty sure Centrelink would be happy to assess the family home if it was included in the assets test. Nevertheless it's inclusion is inevitable, and probably not too far away as the war gen leave god's waiting room. YLC reports more than 255,000 Australian pensioners live on taxpayer-funded incomes while owning homes worth more than $1 million. Further, almost 30,000 age pensioners live in homes worth more than $2 million and receive more than $680 million in pension payments annually. I think it is a reasonable prospect the cut-off value for inclusion might be tied to the max superannuation pension cap balance of $1.6 million.
    Rae
    12th Jan 2020
    8:33am
    $680 million is a drop in the bucket when you consider the value of subsidies given to foreign corporations, in the billions, who pay little or no tax at all. This can't afford it is a myth. If the government needed extra revenue then they wouldn't have privatised everything that made money.
    Discontented
    13th Jan 2020
    9:40am
    You may be big but certainly not very caring are you bear?
    Young
    9th Jan 2020
    11:37am
    This should be stopped.
    Millionaires are getting the pension.
    Circum
    9th Jan 2020
    9:14pm
    Of course it should be stopped and will be at some stage.But it has nothing to do with being millionaires.These days almost everyman and his dog is a millionaire..or will be soon.The biggest issue is that its hard to trust politicians to look at the situation fairly in assessing and indexing the value of assets before deciding the value affects pension eligibility.
    Rae
    10th Jan 2020
    8:19am
    Exactly so Circum. The fact that non concessional amounts in income streams can be as high as 48% yet deemed as only 10% for Centrelink means any made up circumstance can be justified by Government and few will complain about any fairness or equity issues.
    DaddyKool
    11th Jan 2020
    3:22pm
    So I can get the pension!
    Really how so?
    Horace Cope
    9th Jan 2020
    12:00pm
    "Would you ever consider buying a property bigger than the one you already live in? Do you think it is fair that pensioners who live in very expensive homes do not have their family home asset tested?"

    The answer to the first question is: "No!"

    The answer to the second question is: Gee Ben, hasn't this topic been done to death? It seems to be appearing in this forum in one form or another almost weekly and the responses are very predictable with no definitive answer to the question.
    Rae
    10th Jan 2020
    8:21am
    The Financial Industry is itching for yet another change and way to strip yet more tens of billions in fees and charges for advice because it's all so damned complicated and risky.
    johnp
    9th Jan 2020
    12:30pm
    I believe one would need to very careful in upsizing. Centrelink may view that differently at the time if that action was taken; that is upsizing in order to get an aged pension. Basically rearranging one's affairs for just that reason. Be good to see a test case !!
    Greg
    9th Jan 2020
    5:31pm
    They are not interested, if you show the money went to you HOME purchase that's it, all good, here's your pension.
    Rae
    10th Jan 2020
    8:23am
    Tens of thousands upsize at retirement building lovely homes in Noosa, Port Macquarie canals and other very expensive areas without a whimper from Centrelink. Centrelink only object if you are foolish enough to try to save to support yourself.
    johnp
    10th Jan 2020
    9:29am
    Have to agree with you Rae and esp. re foolish enough to try to save to support yourself. Only fair way is a universal pension and it doesnt cost the govt any more
    Hawkeye
    9th Jan 2020
    12:59pm
    This is exactly why, for the sake of fairness to all, the family home needs to be included in the asset test.
    KSS
    9th Jan 2020
    1:10pm
    Well no it isn't, Hawkeye. What would make more sense is that it is only included if you bought a bigger house within say 10 years of applying for the pension.

    People who have lived in thier home for decades should not be treated unfairly just because their home has increased in value over time. If the intention is to stop people burying financial gains in bricks and mortar then close the loophole by putting a timeframe of ownership on it. Afterall those who 'upsize' to obtain a Government pension, can 'downsize' later to avoid same!
    Triss
    9th Jan 2020
    1:35pm
    Remember, Hawkeye, as people get older many will need to live in districts close to medical facilities, transport, etc which usually means higher property costs, even for a very modest home. It is not the fault of an elderly home owner that makes the house s/he bought for $50,000 now worth upwards of $600,000.
    Oldman Roo
    9th Jan 2020
    1:05pm
    I certainly get the impression here that jealousy is also prevalent on this forum . Just what is an advanced age person to do who lived in the family home all his life and has no income to support him ? Some of you would have them kicked out of their home and rob them of the place they love and also often can go back some generations . Do you also want to blame them for the increases in property values over many years ? There are also sometimes reasons like people forced out of their home by Government compulsory acquisition or forced to sell due to old age and health problems to live near a family member for help .
    Triss
    9th Jan 2020
    1:17pm
    Good to see compassion and common sense, Oldman Roo. A universal pension is definitely a necessity as it would get rid of all the "kick 'em out and let 'em starve" opinions.
    Developing countries have introduced universal pensions with success but not the so-called developed country Australia.
    Let’s get rid of all ridiculously high and mostly tax-payer funded pensions of public servants, bureaucrats, bank CEO’s…everyone gets the same pension and saves from their earnings if they want a few luxuries in retirement.
    johnp
    9th Jan 2020
    3:17pm
    Agree with Triss. Esp. re pensions of public servants, bureaucrats, bank CEO’s. Plus need for universal pension which is the case in most developed countries.
    Triss
    9th Jan 2020
    1:43pm
    Perhaps it's time to stop tormenting the elderly and move to the young ones. "No, you can't sit at a coffee shop and drink latte and eat avocado on toast, the government wants that money so go home and have bread and jam and a pot of tea." No, you can't go off on a skiiing holiday the government wants that money to pay off its debt." "Don't forget to buy a house and go without any kind of luxury to pay the mortgage so that when you're 67 the government can take it from you."
    Tongue in cheek but only just.
    Rae
    10th Jan 2020
    8:43am
    Sounds like the old days and public servants Triss. They were made to contribute big after tax amounts which meant it was tea and jam for years so a healthy income stream could be paid for.

    Funny how you can't spend all your money on the lovely things and holidays and still have savings.
    Spud
    9th Jan 2020
    2:41pm
    Want to save money ScoMo ? Grant everyone a universal wage in retirement and all the compliance costs stop !
    Bundabergian
    9th Jan 2020
    5:08pm
    Those of you who think the home should be included in the assets test, how would you treat this little old lady. My 93 yr old mother in law has had the same house since her and hubby bought it 60 odd years ago. The house itself is worth nothing as it is falling apart, but it is in on a big block in a suburb whose value has soared over the years. MiL is still living there alone but with help and wants to stay. She gets a full pension upon which she relies to live. If that house (actually land) value was taken into account she would get nothing.
    Triss
    9th Jan 2020
    8:29pm
    Yes, Bunderbergian, there are a lot of pensioners in the same situation as your mil and it’s irritating how many folk on this link don’t understand that.
    Hawkeye
    10th Jan 2020
    2:01pm
    Only an idiot would assume that, if the home was included in the assets test, the threshold would not be adjusted accordingly.
    Therefore, the vast majority would see virtually no change unless they are wealthy or rorting the system (or both, as they usually go hand in hand).
    panos
    9th Jan 2020
    6:57pm
    What the hell is this crap advice, unbelievable buy a more expensive home so you can still get the pension or part thereof.....This is the trouble one rule for the well off to scam as much as they can and another for the rest of us...

    INCREDIBLE
    Eddy
    9th Jan 2020
    10:55pm
    Unfortunately panos this 'trick' is well known to lawyers and accountants who practice in the area known as 'estate planning', ie how to preserve your assets (for your estate) and still get the OAP. I know of one elderly couple getting the full OAP who live in a 5-bedroom 6-bathroom home with swimming pool and tennis court on about a 2 hectare block. I believe they paid about $M1.75 about ten years ago, must be worth about $M3 nowadays.
    rina1213
    9th Jan 2020
    8:32pm
    NO NO NO family home should NOT be asset tested !!!!!!!!!!
    Hawkeye
    10th Jan 2020
    2:04pm
    Why not Rina?
    Are you using this type of scam?
    Captain
    13th Jan 2020
    4:48pm
    Hawkeye, it is not a scam. People buy property and the property value increases. Buying a property of any value is not a scam and not a crime.
    Rae
    10th Jan 2020
    8:12am
    Selling up to buy a smaller but more comfortable house in a better environment makes sense. On the coast the temperatures are lower in summer due to sea breezes and the older suburbs beat the new concrete heat trap housing estates.

    Many people up grade to better areas and houses with better views through their lives. This option is tax free and not means tested for some odd reason. Those who choose to save instead for self funded retirement get slammed by losing any government support and even having to pay full prices for everything including medical simply because of saving instead of spending on lifestyle.

    Why government chooses to discourage saving and reward consumption and reliance on the State as a dependent is never explained.

    The upgrading the house is looking like a sensible option.
    Frankly
    10th Jan 2020
    8:33am
    I think there shouldn't be any assets and income tests applied and a fixed age pension for all. After all those with assets have earned it and paid much more in taxes than those who haven't so they should not be penalized for saving and contributing to the economy. It's a crazy system we have here in Australia, totally out of step with other developed countries.
    Chris B T
    10th Jan 2020
    10:27am
    Why go to the Trouble of Selling and Buying ($50k out of Pocket) all up costs.
    Gold Plated Taps and Other Fittings to Dwelling.
    Car Rotisserie, drive in and turntable turns car around or hoist needed or not.
    There are many additions/improvements to Dwelling, before moving out.
    Elevator or stair lift the list goes on.
    {;-(0)
    Bundabergian
    10th Jan 2020
    11:20am
    Not really a "retirement trick" is it? Upsizing (or really up-budgeting as like friends of ours you could just move to a smaller house in a more expensive area) is many folks' way of beating the lousy and unfair system. That is IF you want to hold onto your hard earned gains for your children, or to be able to use it later in life. We should all be allowed to do that, as we (or our parents) earned it in the first place. If like us you have no children, and want to spend every penny, then you will down-budget for your last move, not be able to get a pension cos you have money in the bank and then gradually spend it all! I suppose as you get more and more skint a pension might kick in to help. If we plan/guess it right, we will probably end up living in some rented shack and having a ball!
    dante
    10th Jan 2020
    1:35pm
    The principle at stake here is this: is $1 invested in superannuation, shares, term deposit or any other form of asset different to the $1 invested as brick & mortar in your own home?

    If logic is to be applied then it's difficult to argue that this $1 should be treated differently simply because of the form in which it's invested. It's the same $1, it has the same purchasing power, it MUST be treated equally irrespective if in super, in shares or in your home.

    In effect the asset test applied to pensioners provides the EXACT value of your home. "To qualify for a full Age Pension as a single person your assets must also be valued below $263,250 if you own your own home, or $473,750 if you don’t own your own home". The difference is EXACTLY $210,500 and applies to singles, married, maximum rate and pension cut off point. (https://www.superguide.com.au/accessing-superannuation/age-pension-rates)

    This simply means that the 'real value' by which your TOTAL ASSET should be discounted if you own a house is $210,500. This would then would give the 'level playing field' and would treat $ invested into each asset equally.

    In effect all it needs to occur is to estimate all assets, including the family home, and then apply the limit below which a person is entitled to a pension. Under current arrangements that would be $473,500 for single and $785,000 for a couple.

    I can hear the screaming from homeowners that would see their pension vanish. The solution would be to increase the threshold because, frankly, homeowners are being greatly advantaged compared to those that have to rent. Also, the gap between single and couple is too big and allowance should be made for those that remain single following the death of a partner as it's very difficult for a couple to co-ordinate kicking the bucket together.

    The idea of upsizing was proposed by me to Mr Hockey in Q&A when in the 2014 Budget changes were made to the pension which lower the cut-off point for some 300,000 pensioners that lost part pension through deeming rate. (https://www.afr.com/wealth/personal-finance/the-retired-chemist-who-called-joe-hockey-on-the-pension-paradox-20150526-gh9nzg).

    Australia pension need a trunk and branch reform as it's full of stupid concepts, inequalities and open to abuse. For example I know of many cases where assets were 'donated' to family members prior to the pension age in order to receive the pension. These and other irregularities are making it difficult to have an equitable system that provides for people in old age, ie the basic purpose of the age pension.
    Chris B T
    10th Jan 2020
    5:36pm
    You can Add Rental Assistance to your calculations.
    Something Homeowners don't Receive.
    {;-(0)
    Justsane
    11th Jan 2020
    3:57am
    Isn't the fact that you can have more assets if you don't own a house than if you do, proof that your house is already included in the assets test? The difference appears to be $210,500 in every category of eligibility. Just because this is on the low side compared with the cost of the average house, doesn't mean that your house is not already assessed.
    Mariner
    12th Jan 2020
    12:12pm
    Been writing about that for a long time. My joint is not worth all that more and yes - I would certainly upgrade into a nicer house with ensuite and large garage. An extra $400'000 would just get me a nicer place where we live. Without upgrade we would lose the part pension. So where is that inheritance or lottery win?? Have a house in mind already.
    Mariner
    12th Jan 2020
    12:07pm
    How many times do we have to discuss the same topic (family home asset test)? Aren't you all getting tired of this? We all might be better off spending all our dough as it comes in and let the government house us all. We would all be needy and we could close down YLC as well as Centrelink. Oh, what a saving!
    Mez
    15th Jan 2020
    12:31pm
    Certainly fair to downsize to allow more bedrooms into the housing market which has increasing homeless people comprising mainly of the young and elderly, in particular, women!
    Also, it is a good a idea to downsize to a smaller but more expensive home and I do not see anything wrong about that!
    It is hard earned money that was worked for before retirement plus the capital gain of the former property and which some could be spent on holidays abroad before it's too late.


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