- 20 May, 2020
Age pension - time for you to review?
It is the middle of May and the end of the financial year is fast approaching. Now, as we are always told, is a good time to review your financial position and no, I am not talking about the usual subject which comes to mind at this time of year, Taxation.
I am going to address this blog to people in receipt of an age pension; those retirees whose assets may just preclude them from getting an age pension and residents of aged care homes.
Why is now a good time?
On 1 July each year, the assets and income test thresholds for the age pension are increased to account for an increase in the consumer price index (CPI).
This increase results in a corresponding increase in the upper threshold limits at which a person is precluded from receiving an age pension. Unfortunately, at this stage, I do not have the new threshold amounts. However, for those people of age pension age who may not have qualified in the past because of their assets, now could be the time to review your situation.
As an example, a couple who own their own home and have assets other than their principal place of residence of $900,000, could, with some careful planning, be eligible for the age pension post 1 July 2020.
The current upper asset dollar threshold at which you are not entitled to any age pension for a couple who own their home is $869,500. If the threshold is adjusted by 2%, this will increase to $886,890.
Yes, I know the couple in my example is still over the threshold.
As part of their planning at this time of the year they could gift $10,000 before 30 June and then gift a further $10,000 after the 1 July - bringing their total assets to $880,000. The result would be that they may be entitled to an age pension at the minimum rate of $56.40 per fortnight each or on an annual basis $2,932.80 combined.
I think you would agree not a bad return for gifting $20,000.
I should point out that under Social Security legislation you can gift an amount of $10,000 each financial year up to a maximum of $30,000 over a period of 5 years.
For those people in receipt of a part age pension because of either their assets or income, the changes to the threshold levels on 1 July will also mean an increase in their age pension.
For these pensioners now is also a good time to review the assets and income that are being assessed by Centrelink or Veterans Affairs to ensure that the amounts being assessed are correct.
Small adjustments can make a substantial difference. Motor vehicles are a good example; if Centrelink are assessing the value of your vehicle at $20,000 and the true current value is $15,000, for a single person whose age pension entitlement is assessed under the assets test this correction in value can mean an extra $15 per fortnight or $390 per annum. Certainly, enough to fill the car with fuel several times.
Residents of aged care homes should also review the information held by Centrelink and Veterans Affairs. This information is the basis for calculating a person’s daily means tested care fee. These fees are adjusted on a quarterly basis with the next adjustment and review of a person’s fees to be made on 1 July.
If the information held by Centrelink or Veterans Affairs is not correct, then not only could the pension they receive be incorrect, the means tested care fee they are paying could also be incorrect.
The other good news for age pensioners assessed under the income test is that on 1 July, the deeming thresholds at which the value of your financial assets are assessed at either the lower or higher interest rate will also increase, resulting in a further increase in your pension.
By now, you may be scratching your head as you try to understand exactly what I am talking about. I do apologize. Unfortunately, the Social Security legislation is complicated and can cause some confusion. If you are unsure about what your entitlements may be, you should speak to someone who understands both your circumstances and the legislation before you make any decision about your financial position.
In closing, let me emphasise the message - now is the time to review your position -whether you are in receipt of a part age or service pension, a resident in an aged care home, or someone who believes they may be entitled to an age pension post 1 July as a result of the increase in the threshold.
Do not wait until after the 1 July 2020 - it could be too late.