Wednesday, February 16, 2011

Allocated Pensions vs ‘Money in the bank’

A few press articles of late, and a few clients confused on the impact on their pension. Seems to be based on the belief that it is better to take the money out if their allocated pension (life time pension) and put the money into the bank.

Whilst there are many issues, we will simplify the key Centrelink points to provide a basis of understanding before discussing the issues with a financial advisor.

As an example, let’s say a client has an allocated pension of $200,000. Now roughly speaking, Centrelink will allow the client to draw down on that pension without impacting on the income test. For example, if the client had a life expectancy of 20 years when the allocated pension started, then withdrawals/income of less than $10,000 pa ($200,000 / 20 years) will not be counted as part of the income test. Amounts in excess of $10,000 pa would come under the income test.

Now if the client took the money out and placed it in a bank, all the money would be ‘deemed’. So, if the client was single, then the client may be assessed as ‘earning’ more than $8,000 pa; potentially meaning a pension loss of up to $4,000 pa.

Other example are provided on the Governments FAHCSIA page provided below

http://www.fahcsia.gov.au/guides_acts/ssg/ssguide-4/ssguide-4.9/ssguide-4.9.2/ssguide-4.9.2.30.html

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