The income test is the determining factor, writes George Cochrane.
MY HUSBAND, who is 73, is retired and we own our home. I am 62, working full-time. He is receiving $20 a fortnight from an Australian pension and a foreign pension of $200 a month. He does not have any super, while
I have $450,000 in my super account. Can you please advise how I should manoeuvre my super so that when I reach my pension age of 64.5 years I will be able to at least get a minimum pension payment and a pension card while I am still working part-time? R.T.
For your husband to be getting a part pension of $20 a fortnight, Centrelink must be measuring your combined family income at more than $63,000 a year. Once you reach age pension age, you will get a part pension if your combined family income is less than $64,033 a year and your assets are less than $998,000 a year, excluding your home. Thus, your super, once it begins to be counted by the means tests at age pension age, will not cause the assets test to stop you from getting a part age pension. However, if you are still working, it will probably cause the income test to cut the pension to nil. When you switch to part-time work, your income should drop, allowing a higher age pension for your husband. After you turn 64.5, you will receive an age pension equal to your husband's and a pensioner health card.
I AM 60 and my husband is 65. I am a teacher and have about $345,000 in superannuation with SASS. I have $40,000 in three other super funds, including First State Super, and $7000 in shares. My husband, a bricklayer, has only about $43,000 in super and a $120,000 inheritance. As his health is not good, he has worked about two days a week. Because I earn a reasonable income, his pension, which started at $480 a fortnight, has been reduced to about $100 a fortnight. We own our home. What is the most tax-effective thing for him to do with his $120,000? How can we prevent what little super he has from being eaten away with fees? How can he maximise his Centrelink aged pension? A.L.
The means tests won't count your super until you reach your age pension age of 65 and won't ever count your house while you're living in it.
The income test is diminishing your husband's age pension and I estimate it's determining your combined income at about $59,000 a year. As he is over 65 and still working, he can contribute his inheritance into super this financial year after he has worked more than 40 hours within 30 days, which is known as the "work test".
Your First State Super is a low-cost fund and he can open an account and also consolidate his smaller funds into that. Be sure he does not contribute more than $150,000 out of his non-super savings.
He can start an allocated pension now, or later if he doesn't need the money, and will need to take a minimum pension of 3.75 per cent in 2011-12. An allocated pension is money in the super fund allocated to him and no one else and he can invest it in a number of investment options. Allocated pensions are more "pension friendly" than term deposits as the return of the amount invested, divided by his life expectancy (18.5 years for a 65-year-old man), is ignored by the income test.
Theoretically, he can maximise his age pension by gifting his inheritance to you. You will then contribute it into your super fund, where it will be ignored for five more years.
If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Helplines: Banking Ombudsman, 1300 780 808 Pensions, 13 23 00.
Frequently Asked Questions about this Article…
How does Centrelink decide if I qualify for an age pension?
Centrelink uses means tests — mainly the income test and the assets test — to decide age pension eligibility. According to the article, you may receive a part pension if your combined family income is below about $64,033 a year and your assessable assets (excluding your home) are below about $998,000. In many cases the income test is the determining factor.
Will my superannuation balance stop me getting a part age pension?
Not necessarily. The article explains that your super is only counted by the means tests once you reach age pension age. At that point your super balance alone is unlikely to stop you getting a part pension under the assets test, but if you are still working the income from super and employment can cause the income test to reduce your pension to nil.
Can I keep working part-time and still get a pensioner health card?
Possibly. The article notes that switching to part-time work should reduce your income, which can increase the age pension you receive. It also states that after turning 64.5 you may receive an age pension equal to your partner's and obtain a pensioner health card — provided you meet Centrelink’s income and assets tests at that time.
What is the 'work test' so someone over 65 can contribute inheritance into super?
For people over 65 who want to contribute non-super savings (for example an inheritance) into super, the article says they must meet the work test: working more than 40 hours within a 30‑day period in the financial year before making the contribution.
How can consolidating into a low‑cost fund help protect small super balances from fees?
The article recommends opening an account with a low‑cost fund such as First State Super and consolidating smaller super accounts into it. Consolidation can reduce multiple administration fees and help protect a small super balance from being eroded by charges. The article also cautions not to contribute more than $150,000 from non‑super savings into super without checking limits.
What is an allocated pension and how does it affect the Centrelink income test?
An allocated pension is a retirement account inside super where money is allocated to an individual and invested. The article points out allocated pensions are more 'pension friendly' than term deposits because the capital drawdown (the return of the amount invested divided by life expectancy — e.g. 18.5 years for a 65‑year‑old man) is ignored by the income test. The article also notes a minimum pension drawdown of 3.75% applied in 2011–12.
Could gifting inheritance to my spouse help maximise our age pension?
The article says, in theory, gifting the inheritance to your spouse and then having your spouse contribute it into their super could help maximise the couple’s age pension because that super amount would be ignored by the means tests for up to five more years. This strategy has timing and eligibility implications, so it should be considered carefully.
What practical steps can someone with limited super and lump‑sum savings take to improve their Centrelink pension outcome?
Based on the article: consider meeting the work test (if over 65) and contributing eligible non‑super savings into super, consolidate smaller funds into a low‑cost super fund (like First State Super) to reduce fees, consider starting an allocated pension (which can be more favourable under the income test), and be aware of contribution limits (for example the $150,000 caution mentioned). Each option affects Centrelink means tests differently, so plan with Centrelink rules in mind.
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