Tips how to maximise Age Pension entitlements
We discuss strategies that may help improve and maximise your Age Pension entitlements
Age Pension from Centrelink/Department of Veterans’ Affairs (DVA) is subject to income and asset tests. Some assets are exempt from these tests, for example the family home and other assets may attract more favourable treatment. With the assistance and expertise of a financial advisor, there are various strategies that may help reduce your assessable income and assets and improve your entitlement. These strategies may help reduce your level of income and/or assets.
Strategies to help improve Centrelink/DVA entitlements:
- Regular reporting of appropriate valuation of assets
- Pay off debt
- Home improvements
- Lifetime income stream
- Transfer assets to younger spouse
- Funeral bonds
- Purchasing an Insurance Bond in a Private Trust
- Casual or part-time work
- Home improvements
Reminder, this is general advice and does not take into consideration your personal circumstances and finances. We implore you to speak with a certified financial advisor before making any decisions.
The below tips may work best if:
- You are on a part Age Pension but you could be getting more
- You currently miss out but could be eligible for a part Age Pension by restructuring
Accurate valuation of assets:
Ensuring appropriate asset valuation can make a big difference to help maintain or boost your Age Pension. Most assets depreciate over time, and many things such as cars, caravans, and home contents are often overvalued. Centrelink only requires a second-hand value, not replacement or insurance values which are usually much higher. You could be penalising your own pension without knowing it by not keeping Centrelink up to date!
Pay off debt
Some Australians are entering retirement with some form of debt, including mortgages, credit cards or personal loans. Paying off debt offers a potential double benefit – saving on interest and boost Age Pension entitlements. Centrelink/DVA count the value of your bank balance towards the assets test, and whilst investment mortgages generally subtract from your investment property value, personal debt or home loan debt generally does not. So, there is an extra incentive to pay off your home loan and other personal debts before reaching Age Pension age.
Renovating the family home and making improvements can reduce assessable assets which could in turn increase pension entitlements. As the family home is not an assessable asset, money spent on repairs and renovations that contribute to its value are exempt from the asset test. You should consider the money you inject into your home is no longer available to fund your retirement, but it could make it more comfortable and enjoyable whilst also minimising your assets.
Lifetime Income Stream
A lifetime income stream – or annuity – may help boost your Age Pension and stretch your retirement savings further. It is a financial product you purchase that features a predetermined payout amount until death. They are commonly used to provide or supplement retirement income and have the ability to reduce your assessable assets which could increase your Age Pension.
Transfer assets to a younger spouse
Another way you could decrease your assets is by transferring assets into a younger spouse’s superannuation. Super is generally ‘sheltered’ from Centrelink assessment until Age Pension age.
If you have a spouse who is a couple of years younger, you may be able to take advantage of their sheltered status until they qualify for the pension.
Funeral Bonds + Gifting
You could also consider a funeral bond investment that pays for your future funeral expenses. This can help provide you with peace of mind knowing your family won’t have the financial burden of paying for your funeral, coupled with the benefit funeral bonds are exempt from Centrelink/DVA income and asset tests. There are some exceptions, for example, you must not have pre-paid for your funeral expenses (including purchase of a cemetery plot) and must not invest more than the allowable limit.
Gifting, otherwise known as ‘deprivation’ by Centrelink, is when you give away your income or assets. You can give away any amount as long as you don’t go over the gifting limits.
Importantly, if you breach either of the Gifting or Funeral Bond limits, the gifting provisions will apply and your whole funeral bond will be assessable, which is why it is crucial to seek the advice of a professional.
Insurance Bonds in Private Trusts
If you are impacted more by the Income test than the assets Test an Insurance Bond in a Private trust may have some benefits.
A designated private trust (and its assets) are excluded from income deeming requirements that apply to most financial investments such as cash, term deposit, shares and account-based superannuation pensions (post 1 January 2015). The investment will still be subject to the assets test, however as it does not generate ongoing assessable income deeming provisions will not apply.
Risks, ramifications, + other things to consider
With all the above being said, you should ensure you have sufficient funds to support yourself before considering any of the aforementioned strategies that reduce the value of your assets. This is particularly important if you will no longer have access to those funds, in the case of annuities, home improvement and funeral bonds.
It is also important to remember you are required to notify Centrelink/DVA within 14 days of any change to your situation that may affect your entitlement. If any of the above strategies sound like something of interest to you, contact our Wealth Creation team of Certified Financial Advisors for a free consultation to find out how we can help you on (03) 5831 1233.
The ATO is encouraging all Aussies to conduct a superannuation health check. Our 6 simple checks make your super easier to manage. Read our article about it here: When was the last time you did a super health check?
Published 12 September 2023.
The information provided in this article is general in nature only and does not constitute financial advice.