How upsizing protects your pension

So you’ve had a bumper couple of years thanks to some wise investments … or maybe the housing boom has doubled the value of your second property. Either of these scenarios 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.

With all the talk about the Government’s superannuation incentives to downsize, not a great deal of attention has been given to going in the opposite direction.

Asset-rich part-Age Pensioners approaching the limit beyond which their wealth precludes them from welfare are being advised by savvy accountants to 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.

Below are the assets test limits for full and part-Age Pensions:

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.

Other types of investments, however, are very much more interesting to the assessors. Under new asset rules introduced in January last year, 90,000 pensioners lost their entitlements, according to information from the Department of Social Security.

When the new rules were first mooted, David Middleton of Middletons Securities told that: “The bottom line is that a home-owning couple with $800,000 in assets will soon see their Age Pension fall by around $14,000.

“Because 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,” he said.

“This might just ring the death knell on the days where an empty-nester couple chooses to downsize from the family home to something more manageable – and instead we may see them look to buy something that is actually more expensive.”

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 last May Budget’s downsizing initiative to allow retirees to boost their own superannuation funds through a non-concessional $300,000 contribution, after they sold 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 bigger property 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?

All content on the YourLifeChoices’ website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care, but no guarantees are provided for ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness with regard to your circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances. Financial comments provided by readers cannot be relied on as professional advice, but as general comments only. 

Related articles:
Age Pension changes ruining retirement
90,000 lose pension entitlements
Which assets to sell first

Written by Olga Galacho


Are Age Pension changes ruining your retirement?

Changes to the Age Pension rules are having a detrimental effect on retirees.

New assets test claims 90,000 Age Pension payments

New Age Pension assets and income test claims almost 90,000 part-pensions.

If you have an income shortfall, should you sell your assets?

Deciding to sell assets can be very difficult. What should you sell first?