Answering questions on the pension rate income boost

The pension rates are somewhat confusing because there are four changes a year: in July and January each year they adjust the thresholds, and in September and March they adjust the amount of pension paid.

Go to my website, www.noelwhittaker.com.au, to download the new pension charts and play with the age pension calculator and the deeming calculator, both of which have been updated with the new numbers.

When the rate of pension goes up, the upper limit threshold cut-off point automatically increases as well. So now retiree pensioner couples have cracked the million-dollar mark in assets: the cut-off point for a homeowner couple has risen to $1,012,500.

Most wealthier pensioners are asset tested, yet I keep receiving emails from them asking if it's OK to earn some more money. Of course it is -the income test is not relevant if you are asset tested.

A couple with assets of $800,000, receiving a pension of $318.65 a fortnight each, could have assessable income of $62,400 a year including their deemed income without affecting their pension because they would still be asset tested.

Your own home is not assessable, but your furniture, fittings and vehicles are assets tested. Many pensioners fall into the trap of valuing them at replacement value.

This could cost them heavily because every $10,000 of excess assets reduces the pension by $780 a year. Make sure these assets are valued at garage sale value, not replacement value. This puts a value of $5000 on most people's furniture.

There is no penalty for spending money on holidays, living expenses and renovating the family home. But don't do this just to increase your pension. Think about it, if you spend $100,000 renovating your home your pension may increase by just $7800 a year - but it would take almost 13 years of the increased pension to get the $100,000 back.

Of course, the benefit of money spent should be taken into account too - money on improving your house, or travelling could have huge benefits for your wellbeing. The main thing is not to spend money with the sole purpose of getting a bigger age pension.

You can reduce your assets by giving money away but seek advice first. The Centrelink rules only allow gifts of $10,000 in a financial year with a maximum of $30,000 over five years. Using these rules you could gift away $10,000 before June 30 and $10,000 just after it, and so reduce assessable assets by $20,000.

Superannuation is an exempt asset for Centrelink purposes until the owner reaches pensionable age or until they start a pension from it.

If a member of a couple has not reached pensionable age it's prudent, if appropriate, to keep as much of the superannuation in the younger person's name because then it is exempt from assessment by Centrelink. However, the moment that fund is moved to pension mode, it's assessable irrespective of the age of the member.

Bequests are another trap. There is a big difference between the asset cut-off point for a single person and that for a couple. As at March 20, 2024, the single homeowner cut-off point was $674,000, whereas for a couple it was $1,012,500.

Many pensioner couples make the mistake of leaving all their assets to each other, which can cause a lot of extra grief when the surviving partner finds they have lost their pension as well as their partner.

It's a complex area - advice is essential.

Question

I'm looking for advice on the benefits of purchasing private health coverage to avoid paying the Medicare levy surcharge. I'm single and earning $110,000 a year. I understand that it would be better to pay for private health insurance in order to avoid paying the Medicare Levy surcharge, which begins when income reaches $93,000. However I am intending to put $15,000 into the First Home Superannuation Saver scheme, would this mean that my taxable income will go to $95,000 and I wouldn't receive the same tax benefits as I would otherwise without the $15,000 deposit?

Answer

It's not that simple. While your taxable income will reduce to $95,000 (after the $15,000 salary sacrifice), your income for the Medicare Levy Surcharge is still $110,000. This is because the definition of income for MLS is taxable income plus "Reportable Employer Super Contributions', which includes salary sacrifice contributions. Consequently, you will be subject to the MLS, which at $110,000 of income, will be 1 per cent. You would still benefit from an income tax reduction via the salary sacrifice, but will still be liable for the MLS, unless you take out private health insurance.

Question

I will turn 60 in September. I have heard about the benefits of a transition to retirement pension and I'm considering putting this in place with my superannuation. I will go to four days a week and hope to use TTR to offset the one day loss in wages. Would you recommend this as a tax effective strategy?

Answer

I would not call it a tax effective strategy because your fund will still be paying 15% income tax, even though at 60 you'll be drawing a tax-free income. The main benefit of the scheme is that you can gain access to your superannuation without leaving your job. The purpose of the scheme when it was introduced, was to encourage people to stay in the workforce longer.

Question

My elderly mother is an aged pension recipient. She recently sold her home and moved in to aged care. If she gifts $100,000 to her adult children, I understand Centrelink will continue to recognise this as her asset for five years, so her pension will not increase, but it will not decrease. Is this correct?

Answer

This is generally correct, for Centrelink purposes, the $100,000 gift (less the first $10,000 that can be gifted in a financial year), it will continue to be regarded as an asset until five years from the date of the gift.

Your mother's pension may in fact go up as $10,000 in assets is no longer counted if she is assessed under the assets test.