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

Comments

The Age Pension Work Bonus Scheme and Periodic Work

Several recent queries have suggested we update our knowledge base on the Work Bonus Scheme (WBS). The WBS provides a facility whereby the first $6,500 of age pensioners 'wages' is exempt from the income test. The WBS can apply to both you and your partner thereby providing a total of $13,000 of exemptions. In a previous blog entry we discussed how a couple on the full pension was ‘earning’ more than $20,000 on top of the full pension. Each were employed on $6,500 pa and had a $250,000 bank account earning a deemed income less than the 'other' income threshold. This is because the WBS is in addition to the the income test threshold allowance of just over $7,000. So a total of more than $20,000 can be exempted from all classes of income test. Now it should be noted the WBS only applies to only certain classes of employment - refer below. What happens if the age pensioner does not earn a consistent wage - i.e. not a steady amount over the year - yet sti...

1 July 2015 Age Pension Deeming Rate Changes

This article summarises both the recent and forecast changes to the age pension, specifically the changes to deeming rates. SUMMARY 1 July 2015 - every July the Government reviews the deeming rates, income and assets thresholds 20 March 2015 - every March and September the Government reviews the pension rates. Our age pension calculator reflects the above changes and forecasts age pension entitlements as at 1 July 2015. 1 July 2017 - a major change in age pension structure is proposed. Our age pension calculator forecasts a reduction in the age pension that most pensioners can expect. DEEMING RATE CHANGES 1 July 2015 - The deeming thresholds have changed slightly while the deeming rates have remained unchanged, with the ‘upper’ rate of 3.25% still well above cash rates - refer below, for financial investments worth up to $48,600 (for singles - previously $48,000) and up to $80,600 (for couples - previously $79,600), a ...

Reducing the impact of the 2017 Age Pension changes

Maybe you are one of the two-thirds of age pensioners who are going to have their entitlements reduced, or withdrawn, on Jan 1 2017? Some households will be up to $15,000 pa worse off. How can you supplement your income to minimise the impact? The 2017 amendments to the age pension are primarily targeted towards ‘asset based’ age pensioners. The lowering of the asset thresholds may result in ‘earning’ additional income not in fact impacting on revised age pension entitlements. The following is a brief summary of the issues surrounding the options being discussed by clients and ‘the web’. Of course the following is generic and is therefore primarily designed to highlight the issues. Please contact us for specific guidance. Odd Jobs ‘John’ decides to do some odd jobs for neighbours and friends. John sets himself up as self-employed and works from a shed ‘out the back’. He expects to earn around $20,000 pa. A few matters that he should be careful with: Being self-empl...

Age Pension Concierge @ yourpension.com.au

Search This Blog