One of the simplest ways to increase retirement income can also be one of the most difficult. This is because the strategies – maximising entitlements – come with so many complex rules that many retirees are underpaid in retirement.
And this does not just apply to those on full or part Age Pensions. It’s also the case for those who are self-funded, including those who are borderline qualifying for a pension and others unlikely to receive one in the next few years.
Australia’s Age Pension is highly targeted and complex. This means it takes into account a lot of detail concerning your income, assets, financial obligations and monies owed to you.
Keeping a close eye on changes to the rules from when you first start to think about retirement will help you know when an application for the Age Pension, an application for a Commonwealth Seniors Health Card, or other forms of assistance will help improve your bottom line.
And if you’re yet to retire, that’s all the more reason to make sure you base your retirement income projections on your best case scenario, including maximising entitlements.
Our team has identified the five top ways you might increase your income. Read on to see how these work in real life.
1. Is your spouse younger than you?
This is nobody’s business but your own, you may think. But when it comes to retirement there is a big dividend to be gained from knowing and responding to the rules. First up, it helps to know that you are entitled to apply for an Age Pension when you reach the correct age, related to your date of birth (see below for extra detail on the importance of applying early). It does not matter that your spouse is below Age Pension age – your joint assets and income, however, will be assessed. And if you are successful, you will be paid half the couples’ Age Pension. Your spouse can then apply when he/she reaches Age Pension age, and the other ‘half’ of the couples’ pension will be paid.
The critical point, however, is the treatment of a younger spouse’s super. If your spouse is still working and below Age Pension age and their super is still in the accumulation phase, then their super is not included in the assessment of assets for your Age Pension eligibility. This can make a huge difference to your assessment, so it is important to both understand this rule and ensure you comply with it if one of you seeks a pension earlier than the other.
The other rule that has a major impact on your eligibility is the ‘bring forward rule’, which allows you to contribute up to $330,000 to your, or your partner’s, super, assuming they meet the relevant rules. There’s a lot to understand here, so speaking with a supportive financial adviser is key to good decision-making.
Simple sums – Evie and Dave
Evie is 57 and Dave is 67. Evie wants to keep working. Dave decides to apply for the Age Pension. With $1.1 million in assets, and combined income of $56,000, he does not qualify due to the assets test. Dave makes a lump sum contribution of $220,000 to Evie’s accumulation account. He could have contributed as much as $330,000 under the bring-forward provision, but $220,000 was enough to qualify for a part Age Pension as their joint assessable assets (which excludes Evie’s super) have moved to below the threshold for homeowners. In addition to a small Age Pension, Dave also receives some Age Pension supplements and the Pensioner Concession Card.
2. Do you have a mortgage in retirement?
With record low interest rates, many retirees may have felt very comfortable carrying a mortgage into retirement. The monthly repayments are as low as they’ve been for decades – although they are on the rise after the Reserve Bank decision in early May – and it means that keeping a higher amount in super or cash deposits ensures ready access for discretionary spending. But this strategy ignores a key plank of Age Pension eligibility. As you know, your primary residence is not assessable for the Age Pension. This is the case if the house is encumbered with a mortgage or not.
Simple sums – Jenny
Let’s consider the case of Jenny who just missed out on Age Pension qualification – as a single homeowner her assets were above the limit of $599,750. Part of her assets included $145,000 in a term deposit. This money was earning interest of 1.5 per cent per annum. Taking advice, Jenny decided to use $100,000 to pay off her remaining mortgage. This had three effects.
First, she forewent the $1500 per annum interest earned from the cash account. But it saved her $3250 per annum in mortgage interest – net gain $1750. Most importantly, she then qualified for a modest part Age Pension ($300 per fortnight, or $7800 per annum, including supplements) and the Pensioner Concession Card, worth an extra $2000–$3000 per annum. Jenny’s income is well ahead of where she was before paying off her mortgage.
But taking the decision to pay down a mortgage is always a trade-off as you can lose access to the ready cash in your bank account. A qualified financial adviser can run the sums for you, so you can compare scenarios and reach your own best decision.
3. How long since you’ve reviewed your assets?
You will need to pass two forms of assessment before the Age Pension is granted. One is the income test, the other the assets test. There is little leeway in reporting income, which is generally wages, salary, dividends or rent as well as income deemed by Centrelink. Assets, however, can often be misreported – in many cases over reported – as it is unclear how to value your different possessions.
What is important is to ensure that all valuations of your assets are up to date at all times. Centrelink will not come asking if your personal assets have devalued. So those assets that are listed and relevant to your current entitlements may change in value over time. This is particularly pertinent when it comes to personal assets such as cars, boats, caravans and household contents, as they depreciate.
In many cases, those who did not qualify for an Age Pension – even a part one – may find that they do qualify over time. And, of course, with this pension entitlement comes the added bonus of the Pensioner Concession Card. You can check for yourself, on this free eligibility calculator, the impact that asset valuation has on your entitlements.
Simple sums – Annie and Colin
Annie and Colin recently spent $12,000 on a road trip from Rockhampton, in Queensland, to their extended family in Victor Harbour, South Australia. As well as enjoying two months of summer sun, beaches and family catch-ups, they have now qualified for an extra $18 per fortnight ($468 per annum) as Colin went to the trouble of informing Centrelink that their term deposit had decreased from $60,000 to $48,000.
4. Are you entitled to this money-saving concession?
About one-third of Australians are self-funded in retirement. It is largely for this cohort that a Commonwealth Seniors Health Card (CSHC) was introduced, helping those who will not receive an Age Pension to similar pharmaceutical, medical, energy and transport discounts as those who do. Yet only a small percentage of self-funded retirees have bothered to apply for this card.
This is partly due to the detail required in the application process, but also possibly because too few retirees are aware of the entitlement. Again, conservatively, the concessions attached to this card can mount to $3000 a year or more, so it is certainly worth investigating if you are a self-funded retiree.
The important rule to remember is that your assets are irrelevant when it comes to claiming this entitlement – entitlement is based purely on your income, which must not be more than $57,761 for singles and $92,416 combined for couples.
Be sure to check whether you qualify in the wake of Coalition and Labor promises to spend $70 million over four years to give an extra 50,000 older Australians access to the card.
Retirement Essentials can help with your application.
Simple sums – Tom and Sarah
With a spacious family home, a holiday home and large recreational vehicle, Tom and Sarah thought they would have no chance of qualifying for a CSHC. But as this card is based on the income of self-funded retirees, and Tom and Sarah earn a total of $76,000 per annum from share and term deposit investments, they come in well below the $92,416 threshold for a CSHC.
5. Timing your retirement and your entitlements
This is another instance where the onus is on you to get your application right. In the ‘old days’ it was easy – it was simply 65. Now, it depends on your year of birth. But whenever your eligibility commences, it’s worth knowing that you can apply for the Age Pension a full 13 weeks beforehand. Many applicants believe they have to wait until they turn the required age, and then start the application process that may take eight to 10 weeks.
Centrelink will pay the entitlement from the later of age eligibility or lodgement date of your completed application – back pay will only cover from the date you are approved back to the date you lodged the claim, not the date you became eligible.
To help ensure you get your payments as soon as possible, you can submit your application up to 13 weeks before you reach Age Pension age. Lethargy or confusion can also deter retirees from early applications. Again, if this is your entitlement, getting it sooner rather than later makes a great deal of financial sense. And don’t forget, even if you don’t qualify for a full or part Age Pension, during the application process you can learn if you qualify instead for a Commonwealth Seniors Health Card.
If you are approaching Age Pension age, use this handy calculator to learn if you are likely to be eligible for a full or part Age Pension.
Simple sums – Edward
Edward applied for an Age Pension five years ago and did not qualify, due to having assets over the asset threshold. Since then, he has substantially renovated his home, reducing his assets by about $80,000. He now qualifies for a modest part Age Pension and appreciates the associated benefits of the Pensioner Concession Card. Sadly, he did not reapply for the Age Pension as soon as he had paid the builder’s invoice. He waited a year. This lost money can never be recovered. He is philosophical about this, but wishes he’d followed the threshold requirements more closely.
This article was first published by Retirement Essentials and is republished with permission. Retirement Essentials provides services to help older Australians secure and maximise their Centrelink entitlements and manage their income in retirement.
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Disclaimer: This article is provided by Retirement Essentials Representative Number: 001260855. We are an authorised representative of SuperEd Pty Ltd ABN 88 118 480 907 AFSL #468859. This information is not intended as financial product advice, legal advice or taxation advice. It does not take into account your personal situation, goals or needs and you should assess your own financial situation, consider if the information is suitable for you and ensure you read the relevant Product Disclosure Statement (PDS) if you choose to make any changes to your financial situation. It is always advisable to consult a financial adviser before making financial decisions.