Finance topics every retiree should follow
This is what keeps retirees, and their financial advisers awake at night.
This article discusses the most common technical and regulatory topics that advisers have been asked during the July-September 2022 quarter:
The income thresholds for the Commonwealth Seniors Health Card will be raised (outside of indexation).
The income thresholds for singles will increase to $90,000 from the current $61,284; for couples, the increase is to $144,000 from $98,054 currently.
Becoming eligible for the Commonwealth Seniors Health Card gives individuals access to valuable concessions, such as cheaper medicine under the Pharmaceutical Benefits Scheme. Visits to the doctors can potentially be bulk-billed, and people can receive a refund of medical costs when they reach the Medicare safety net. Additionally, cardholders may also receive economic support payments which were worth $1,000 across 2020 and 2021.
You can find out more about eligibility for the scheme here.
More Australians are expected to be able to make a downsizer contribution into super – up to $300,000 per person or $600,000 for a couple – with the eligibility age expected to reduce to 55 years, from the current 60 years, in coming months.
Advisers with clients who are about to turn 55 years of age, and are planning to sell their home, may wish to consider the timing of the legislation. Again, this amending legislation is currently in parliament with a commencement date of the beginning of the first quarter after Royal Assent, the earliest commencement date will now be 1 January 2023.
To contribute proceeds from a property sale into their super, amongst other requirements, clients need to have owned their home for ten years or more. A downsizer contribution does not count towards any other contribution caps and can still be made even if a person has total super savings greater than $1.7 million.
More senior Australians are participating in the Home Equity Access Scheme (HEAS), and take-up is expected to increase due to recent changes which have made the scheme more flexible.
The HEAS allows Australians of age pension age to enhance their income in retirement by accessing the equity in a property they own. Before 1 July, an eligible person could receive only their loan amount as a fortnightly payment. Like what is available from a commercial reverse mortgage, lump sum advance payments are now also an option under the scheme. Any lump sum is capped at 50 per cent of the participant’s maximum pension rate.
Alternatively, a scheme participant may take a partial lump sum amount and the remainder as a fortnightly payment.
While the HEAS may suit some senior Australians, many considerations should be weighed up. Using an existing property as security for a HEAS loan has the potential to impact estate planning, so some eligible Australians may be hesitant about taking part in the scheme.
Margaret is aged 70 and a single homeowner receiving the full age pension. She could apply for the HEAS using her home as security for the loan.
Under the HEAS, Margaret could receive 50 per cent of the maximum pension rate as a lump sum advance or as a fortnightly payment. She could also choose any combination of these two options providing the total amount she draws does not exceed 50 per cent of the maximum pension rate.
If Margaret were a part-age pensioner, she could receive up to 50 per cent of the maximum pension as a lump sum and top-up her fortnightly age pension with an additional amount. Margaret could do so long as these two amounts, plus her rate of part-age pension, do not exceed 150 per cent of the maximum pension rate.
Based on the current trajectory of the Consumer Price Index, the general transfer balance cap is expected to increase to $1.8 million from 1 July 2023 unless legislative changes commence.
The transfer balance cap limits the amount of superannuation that can be transferred to tax-free retirement income streams, with the cap currently $1.7 million.
The application of the work test rules is consistently one of the most popular technical topics among advisers.
Individuals aged between 67 and 74 who have recently retired may still be eligible to make personal deductible contributions to super if they meet eligibility criteria around their previous year of work and their total super balance.
To claim a deduction for a personal contribution, if a super fund member is between the ages of 67 and 74, they must have been employed for a minimum of 40 hours in any period of 30 consecutive days during the financial year in which the contribution was made.
An exemption to the work test applies only if the person meets another set of criteria. People who have not been gainfully employed during the financial year can still make a personal deductible contribution if:
They met the work test in the financial year immediately before the year of the contribution; and
They have a total super balance of less than $300,000 at the end of the previous financial year; and
They had not previously used the work test exemption in a previous financial year to contribute to any regulated super fund.
The work test exemption provides an opportunity for recent retirees to potentially make personal deductible contributions to super at a time when such contributions were previously off the table.
The writer of this article is Tim Howard, who fields over 2,000 queries from advisers every quarter regarding superannuation, tax, and social security.
The full article first appeared in Firstlinks.
The information provided is general information only, and it does not constitute any recommendation or advice. It is intended to provide an overview or summary and should not be considered a comprehensive statement on any matter or relied upon as such.
