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Showing posts from 2011

Super & Allocated Pensions – under the age pension age

The last post we discussed the issues surrounding allocated pensions and ‘money in the bank’. What we did not highlight was the implications should a partner be under the age pension age. If a pensioner has a partner under the age pension age, then super assets of that partner are not taken into account. However if the partner starts an allocated pension / income stream, then the asset value, and income will come into the Centrelink pension calculations. Swapping the allocated income stream back to an accumulation phase super will reverse the treatment by Centrelink.

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 clien

Sale of a Home and the Assets Test

Another big week for a client. The client had advised Centrelink of changes to his assets – as he is required to do, and he 'lost' the pension. He provided new bank balances which included proceeds from the sale of his home - $500,000. Unfortunately he did not advise Centrelink that it was his home that was sold, and the new asset levels placed him over the threshold for the pension! We corrected the Centrelink records which resulted in him being provided with 12 months exemption from the assets test for the proceeds if the house sale; and we were also able to get him rent assistance for the period. He was not on the same full pension as previously, as he was benefiting from the proceeds being invested in a term deposit. In simple terms he had invested the $500,000 in a term deposit of 6%; therefore receiving approximately $30,000 per annum in interest. Therefore Centrelink reduced his pension by 50cents in the dollar for this interest - $15,000 pa. Instead on the orig

Pension Loans Scheme

People of age pension age (or their partners) who are not eligible for a pension because of either their income or their assets, or those who only receive a part pension, can access capital tied up in their real estate under the Pension Loans Scheme. For example, if you were on a part pension because of your assets, but you needed more income. Pension Loans Scheme would allow you to be paid the full pension, with the difference between your part pension and the full pension being treated as a loan. Interest is charged on the loan and a mortgage is taken out over the property by Centrelink or the Department of Veterans Affairs.

Loans taken out against the home

“What happens if a pensioner takes out a $100k loan out against the home?” As with salary sacrifice, negative gearing etc. Centrelink treats the loans completely different to the ATO. Under Centrelink rules, loans taken out and secured over a person’s home are not counted as a liability, no matter what purpose they have been taken out for. If the money was taken out and placed into the bank – any account, savings, term deposit etc. – Centrelink will: • Add the $100k to the pensioner’s assets for the purpose of the assets test • Add the deemed income to the income test, and • The interest paid on the loan will not be taken into the account to reduce the deemed income. Of course if – say - $60k was used for renovations, then only the remaining $40k will be used to adjust the Centrelink assets and income values. However, again no recognition will be made of the interest being paid on the $100k loan. That is, your ‘deemed income’ will not be reduced by these interest costs.

Pension Bonus Scheme

This week we assisted a client achieving more than $40,000 from the Pension Bonus Scheme. NOTE: Whilst the Pension Bonus Scheme has been cancelled, those who were registered before the scheme ceased, can still apply. Also those who failed to register before that date, but are eligible can still apply. He had worked the required 5 years and believed he was eligible. He had sold his company 6 months prior claiming the age pension. Centrelink had treated this as him not working for this 6 month period, and therefore not eligible for the bonus. However we submitted that in fact one of the conditions of the sale of the company was that he was providing consulting services to the new owner, under the contracted succession plan. His bonus was then paid. The Pension Bonus Scheme was a work test, not income test.

Work Bonus Scheme - WBS

The Work Bonus Scheme has been promoted as a replacement for the - now cancelled - Pension Bonus Scheme. Centrelink promote the scheme as “an incentive for pensioners over pension age to participate in the workforce”. Under the new Work Bonus, half of the first $500 of fortnightly employment income will be disregarded from the income test for pensioners over Age Pension age. This means the maximum allowance is $250 per fortnight. This is in addition to the normal allowable income free threshold. For example: a) If a pensioner earns $400 per fortnight, then Centrelink will only treat $200 as part of the income test – i.e. maximum WBS allowance of 50% of wage. b) If a pensioner earns $800 per fortnight, then $550 will be accessed under the income test – maximum WBS of $250 per fortnight. c) If a pensioner earns $100 in the first fortnight and then $700 for the next – the WBS benefits will be $300 for the month ($50 + $250). Whereas, if the pensioner earned the same monthly amount


Our first blog entry will be comments on an often mistreated gifting rule. Often pensioners will accidently misrepresent the purpose of the money, and be adversely treated by Centrelink. While the pensioner may use the term ‘gift’ to Centrelink, depending on the use of the money it may be ‘ignored’ by Centrelink. Centrelink will only allow a gift of $10k per year, or $30k over 5 years. Hence if a pensioner gifts $100k, the reduction in assessed asset base will be as follows: Year 0 $100k Year 1 $90k Year 2 $80k Year 3 $70k Year 4 $70k Year 5 $70k Year 6 $0 Noting that independent of the value of the gift after 5 years the gift value will be ignored by Centrelink. Centrelink say… "Gifts may be assessed for 5 years from the date of transfer and deemed income will apply". "Gifting does not include you selling or reducing your assets to meet normal expenses, for example, to buy consumer goods like a fridge or washing machine, for home maintenance/impro