- 27 October, 2015
Saving your age pension, one gift at a time
Our media is full of discussion around changes to the age pension assets test that will come into effect from 1 January 2017. However, some of the strategies being promoted in the press, with the aim of enabling affected Australians to keep their pensions intact, are scary to say the least.
For some, the idea of giving away money or assets to children, even if it is only a “loan”, may appear attractive.
Let’s consider Steve and Kathy.
They are both receiving a part age pension which is supplemented by their superannuation. They have around $900,000 in assets that are assessed for age pension purposes. However, because their assessable assets exceed $823,000, they will lose their age pension entirely from 1 January 2017. This is concerning for Steve and Kathy as they rely on their part age pension and their concession card.
In order to preserve their age pension Steve and Kathy’s neighbour, who has read something in the media and “knows all about this stuff”, has suggested they give $200,000 to their children. Now we know that while this will technically be a gift, the deal is that the children will be required to help Steve and Kathy out financially from time to time, if needed.
So, if they proceed with this plan, will it save their age pension?
To their mind, their assessable assets will be below the new cut-off point for a part age pension, so they will retain a small age pension, and will keep their concession card.
Delve into the inner workings of Centrelink and the age pension system, however, and you will come across a couple of key considerations. The first relates to loans, and the second covers gifts.
Loans made by a pensioner, even an informal loan made to a family member, will continue to be counted as an asset for assets testing, and an amount of income will be “deemed” to be received, even if the loan is interest free.
Gifts however are handled differently.
A current or prospective pension recipient may gift a certain amount each year without it having adverse impact on their pension. The current limit is $10,000 each financial year, subject to a maximum of $30,000 over any continuous five year period. Where the amount gifted, whether it be money or other assets, exceeds the annual limit, the excess will continue to be counted as an asset for the next five years, and will be subject to deeming for income purposes. So, simply giving assets away does not solve the problem.
So, in Steve and Kathy’s case, simply lending or gifting their excess assets is not going to provide the outcome their helpful neighbour suggested.
Incidentally, giving away assets before applying for the age pension won’t necessarily get around the gifting provisions. You see, when you apply for the age pension, you will be asked to provide details of any gifts made in the previous five years. And gifting includes the disposal of an asset for less than its market value!
The rules around the age pension, loans and gifting can be quite complex.
It is likely that around 330,000 Australians will either lose their age pension altogether, or have their pension reduced come January. We would encourage all readers to seek appropriate advice from a qualified source if they are concerned and certainly before acting.
The Realise Your Dream blogs are written by Peter Kelly and Mark Teale. More information about the authors can be found here