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How to restructure your assets for improved incomes
5 June 2017

It’s not widely advertised, but there is a strategy out there that can provide one access to a Centrelink age pension.  That got your attention, now for the fine print: you must be a part of a couple, and you must have a reasonable gap in your ages (with one member obviously having reached age pension age).

The main crux of the strategy is moving assets into the superannuation fund of the younger member of the couple, effectively sheltering them from Centrelink assessment.  There is a minefield of rules and regulations to bear in mind though, so best not to try this at home.  Contact your Hudson financial planner to see if it is a good fit for you!

Following are three real life examples of Hudson members that have made significant financial gains, simply by rearranging their asset base

1. Zero Centrelink eligibility, or so they thought…

Bob 65.5 and his wife Mary 60 years.  Both retired.  Homeowners.

Income generated all from their own asset base.

Assets are:

$109,500 in shares

$750,000 Allocated pension (Bob)

$200,000 Superannuation (Mary) – not assessable as Mary is under age pension age.

$859,500

The first hurdle is the asset test.  Current assets test limits for couple homeowners state that Bob and Mary’s assets need to be within $375,000 and $821,500 for them to be considered for a part age pension (to qualify for a full age pension using the assets test, assets need to be below this lower threshold).  Given that Bob’s Allocated Pension and their shares total $870K, they are not eligible for any age pension entitlements from Centrelink.  Or are they?

It is important to note that the total amount moved to Mary’s superannuation is $540K.  This is the maximum allowed under the bring forward limits for non-concessional contributions for the 2016/2017 financial year.  If we had waited until the 2017/2018 financial year, Mary  would be limited to contributing only a maximum $300K into her superannuation fund via the bring forward rules.

All Bob needs to do is withdraw up to $540K of his Allocated Pension and contribute it to Mary’s superannuation fund by 30 June, and voila, suddenly their asset pool looks a whole lot different:

$109,500 in shares

$210,000 Allocated pension (Bob)

$740,000 Superannuation (Mary) – not assessable as Mary is under age pension age.

$319,500

With assessable assets of $319,500, they have passed the assets test for age pension eligibility! Woohoo!  However, they are not out of the woods yet.  The second hurdle is the income test.  Centrelink will deem these financial assets to be generating a certain rate of return.  The deeming rates are as follows:

$81,600 @ 1.75%

  • $81,600 @ 3.25%

So in Bob and Mary’s case, Centrelink are deeming them to be earning $352.30 per fortnight. ($81,600 @ 1.75% and $237,900 @ 3.25%).  Whilst this deeming means that Bob is definitely not eligible for the full age pension, he is certainly entitled to something in the vicinity of $590 per fortnight or in excess of $15,000 per annum.  Good result, I’d say

2. Increase in existing part age pension

Richard 65, retired and his wife  Jane 57 and still working.  Homeowners.

Income $44,000 from Jane’s employment and Richard currently receives approximately $6,000 per annum via his Centrelink part age pension. 

Asset are: 

$130,000 cash

$215,000 Superannuation (Richard)

$285,000 Superannuation (Jane) – not assessable as Jane is under age pension age.

$345,000

Whilst Richard and Jane’s assets are under the $375,000 threshold, the income that Jane earns and the income that is deemed from their financial assets (cash and Richard’s super) is both assessed and reducing Richard’s age pension entitlements.  However, simply by restructuring some assets, we can improve Richard’s age pension amount.  All we need to do is move $100,000 Cash + 100% of Richard’s super to Jane’s superannuation, as follows:

$30,000 cash

$600,000 Superannuation (Jane) – not assessable as Jane is under age pension age.

$30,000

It is important to note that the total amount moved to Jane’s superannuation is $315K.  This is within the bring forward limits for non-concessional contributions for the 2016/2017 financial year (the maximum being $540,000), however, if we waited until the 2017/2018 financial year, Jane would be limited to contributing only a maximum $300K into her superannuation fund via the bring forward rules.

End result for this couple is an improvement in Richard’s age pension as Centrelink are effectively no longer deeming the financial assets to be generating a return.  This shelters income of $9,988 per annum ($81,600 @ 1.75% and $263,400 @ 3.25%) which translates into an increase of the age pension of approximately $80 per fortnight.  Richard’s age pension is now closer to $8,000 per annum – money for jam.

3. Access to Centrelink age pension despite already receiving an alternative pension

Jack, 68, retired and his wife Lola, 59 and pending retirement.  Homeowners.

Jack receives income of $24K per annum via a Defence Pension, $14K per annum net rent from an investment property and Lola assumes she will be drawing an income from her superannuation balance via an Allocated Pension.

Assets are:

$100,000 cash

$500,000 unencombered real estate investment

$585,000 Allocated Pension (Lola) 

            $1,185,000

In this example, Jack and Lola’s assets exceed the higher threshold of the Assets test, and their income is borderline.  Simply converting Lola’s Allocated Pension back to the superannuation environment will mean Jack unlocks accessibility for some part age pension.

Assets:

$100,000 cash

$500,000 unencumbered real estate investment

$585,000 Superannuation (Lola) – not assessable as Lola is under age pension age

$600,000

And just like that, Jack and Lola’s assessable assets now lie within the assets test thresholds.  Their annual assessable income now consists of the $24,000 defence pension, $14,000 net rent and $2,026 deemed from their cash holdings ($81,600 @ 1.75% and $18,400 @ 3.25%).  They will be assessed under both the assets and income test and Jack’s entitlement will be the lower of the two outcomes.  This all means that Jack is now eligible for an age pension entitlement of around $270 per fortnight or $7,000 per year.





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