Your retirement is yours, not your child's!

“It’s principle role is to ensure that over the course of your working life you are putting money away to ensure that when you are retired you can be as independent as possible”

So says Scott Morrison the new Federal Treasurer, on the government’s view of superannuation.

Mr. Morrison’s view of “independent” is not having to rely on the Age Pension when you turn the appropriate age.

However I am not sure that the retiring, or the retired person is of the same opinion.

Every year we are inundated with numerous research reports on ageing, longevity, attitude, retirement and how much is needed to support your lifestyle.

The most recent I have seen is the annual “The Journey Begins” survey conducted by the REST superannuation fund. They surveyed 1,167 people, 80 % under the age of 65, and evenly split between female and male.
 

• 33% plan to forgo an inheritance so it is passed to their children to enable them to pay a deposit for a home – if you are in receipt of an age pension or, are within five years of applying for an age pension, be aware that if you are named as a beneficiary in a will and decide to forego the inheritance, it is viewed as deprivation and can have an impact on any current or future pension entitlement.
• 28% plan to help their children pay a deposit on a home – whether this is via a gift (see PK’s recent blog) or an interest free loan, people need to understand the impact of this generous initiative on their own retirement before making a decision.
• 32% of those who are planning to help their children, will use the equity in their home to do so. If you borrow against your home and then lend this to your children, be aware that this will be seen as a financial asset and subject to deeming. The value of the loan against your home is not offset against the value of the loan to your children. Being a guarantor for your children’s loans can also have an adverse effect on any pension entitlement if your child defaults on the loan.

My view on any of the above is a little cynical. While it is all very noble to give your children a leg up in life, you should not expect to have the reduction in your lifestyle funded by an increase in the age pension, or by an entitlement to the age pension.

It’s no longer you providing your children with a leg up, it is everyone who is paying taxes or has paid taxes in the past who are funding the increase in your age pension entitlement, giving your children a leg up…..all very noble of us I know.

However, despite my cynicism if anyone is looking to help your children in any way, ensure you do talk to an expert about the ramifications on your current age pension or any future age pension entitlement.

The Realise Your Dream blogs are written by Peter Kelly and Mark Teale. More information about the authors can be found here