Lump sum pension withdrawal

Will a withdrawal from an allocated pension affect the Age Pension?

Lump sum pension withdrawal

Paula is considering withdrawing a lump sum from her allocated pension and would like to know if this will affect her Age Pension payment.

Q. Paula

I currently receive a part Age Pension. Please can you let me know if I decided to withdraw $5000 from my allocated pension, on top of the current drawdown of five per cent per annum, whether that $5000 payment would affect my Age Pension?

A. Any withdrawal from your allocated pension is unlikely to affect your Age Pension as it is already assessed by Centrelink in determining your pension payment. However, what you decide to do with the money may have an impact, such as buying an assessable asset, (e.g. a car), investing the money in an interest-paying asset (e.g. shares) or even leaving it in the bank.

If you intend to use the money for house repairs, travel or anything that is not currently assessed as an asset, then your Age Pension should not be affected.

You should clarify your situation with Human Services, which needs to be advised of any amount above $2000.





    COMMENTS

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    adbob
    17th Jul 2015
    11:15am
    The capital value (aka account balance) of an Allocated Pension counts as an assessable asset under the assets test as does a bank balance. In both cases surely a transfer from one to the other would have a neutral effect in respect of the assets test.

    An exception would be products purchased before either September 2007 or September 2004, which would enjoy (respectively) 50% or 100% exemption from the assets test, so moving money out of that area into one with no exemption would (if the assets test were the critical one) result in a reduction in age pension.

    The income test is affected differently. Bank balances have a deeming rate applied to generate a notional income irrespective of what the real income is - allocated pensions are treated differently.

    For most people the assets test is the killer these days. The income test is only likely to bite if (more fool you) you work maybe part-time to supplement your pension.

    Consequently a withdrawal with the cash going into a bank account (eg to give you a bit more liquidity) might result in a reduction in age pension, but it depends on your situation.

    A withdrawal spent on eg a foreign holiday or home improvements would reduce your Allocated Pension's account balance (which is assets test assessable) and hence you could (other things being equal) expect an increase in your age pension.

    Other things *not* being equal might include eg today the assets test applies - you make changes - the result is that income test being the critical one.
    Peterrj
    17th Jul 2015
    11:59am
    The article states, "If you intend to use the money for house repairs, travel or anything that is not currently assessed as an asset, then your Age Pension should not be affected." But you say that such a withdrawal spent on home improvement or a holiday could mean an increase in your pension??? Seems only one of your are correct???
    Peterrj
    17th Jul 2015
    12:02pm
    Would you believe that English is my Second language???
    thommo
    17th Jul 2015
    2:16pm
    adbob,why if you are working part time are you "more the fool you"?

    17th Jul 2015
    11:49am
    Centrelink is advised twice a year (in March and September) of your super balance by your superannuation provider. This balance is used by Centrelink to help determine your amount of Age Pension for asset-tested entitlements, together with other assets such as car/s, shares, bank accounts, etc. As your assets' value do alter (appreciate and depreciate) it is a good idea to advise Centrelink of this change in value, as the value more than likely lessens with time, as with car, bank account, and, possibly, shares. So, an updated lesser-value-than-before for your car due to depreciation and a smaller bank account due to inflation, or lower shares' value due to market fluctuations means you have less assets and may be due for an increase in your Age Pension. Best to be open and upfront with Centrelink and, with the economy being what it is now, present conditions are more favourable for an Age Pensioner to have lesser assets now than when last assessed, which, hopefully, means an increase to your pension. As always, good luck.
    Ikantu
    17th Jul 2015
    9:08pm
    Good luck with trying to contact Centrelink. I have been trying to contact them for a week with no luck. Was advised there is more than a 30 min delay, then 45 min delay then more than 90 min delay. Went to Centrelink office, told to send an email.Sent an email, no response. Given up. Has anyone else had this happen to them?
    Jim
    18th Jul 2015
    6:10am
    Constantly, I have given up trying to contact Centrelink by phone, I go to the Centrelink office as soon as they open, usually in and out inside 30 minutes.
    fatman
    29th Jul 2015
    6:40pm
    To Ikantu, i had hassles with centrelink also. I lost my job, got a redundancy package from my employer, spent it in 12 months, went to centrelink & they said no assistance, that payout should have lasted you 2 years.??? Used all my other savings, going to have nothing in a months time. Went back to centrelink, got a completely different person who said i should have been paid benefits from my first visit. Paperwork all done there & then, money in bank 2 weeks later. I have observed on several visits to centrelink, some care & some don`t care, & the office i go to the staff has been halved.
    Saltbush
    30th Jul 2015
    10:23pm
    I am in a similar situation to Paula and have been withdrawing the 5% min and the occasional cash withdrawal for extra spending money. I talked to one of Centrelink FIS officers and found that it is not quite as simple as I thought it was re the impact on the pension. Basically the 5% is considered as free and doesn't effect the income test, but the cash withdrawals are outside the free area. The withdrawals of lump sums reduces the capital balance in your account. This reduced balance, in concert with the your life expectancy, (your life expectancy was worked out at the time you purchased the product) then produces a figure that is used to establish a new free area. This changed free area can effect your pension. No doubt it will be different for each of us, so talking to one of the FIS staff at Centrelink is well worthwhile. They work by appointment so there is no long wait to get the benefit of their very broad knowledge of the welfare system.
    adbob
    30th Jul 2015
    11:31pm
    The rules changed on 1 Jan 2015. Those who are eligible for grandfathering operate under the old rules. All account based pensions started after that date follow the new rules.

    Free area describes the amount you can earn before the income test cuts in. Under the new rules the financial assets deeming rates are applied to your pension account balance irrespective of what the actual earnings are. If you have any other earnings (part-time work - investments held outside super etc) that is added onto that. That's under the new rules.

    Under the old rules (which sounds like this may be your case) there is a calculation :

    AP - [(PP - RCV) / RN

    Where:
    AP = annualised pension payment amount
    PP = purchase price less lump sum commutations
    RCV = residual capital value
    RN = relevant number

    AP being treated as income. It's an attempt to allow for the fact that part of what you get is just your capital being repaid to you - the remainder is treated as income. For most people it's worth hanging onto the grandfathering (ie keeping the old rules applying to you). If you change provider you will lose the grandfathering.

    For most people the assets test is the killer. People who work part-time to try to do a bit better for themselves will bump into the income test for sure though.

    It's a massive poverty trap.

    If you have to be poor Australia is a pretty good place place to be. For spongers and scroungers it's a definite first choice. It's also a great place to be rich. It's not a good place to be an ordinary working person.
    Young
    15th Oct 2015
    11:05am
    Ad bob,what is grandfathering?
    Young
    15th Oct 2015
    11:05am
    Ad bob,what is grandfathering?
    adbob
    15th Oct 2015
    12:38pm
    Grandfathering occurs when rules change and the changes apply to new entrants but not to those already involved, to whom the old rules continue to apply.


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