- Pension payment depends on the assets test
- Pay off the mortgage
- Renovate the home and limit gifting
Many Seniors often wonder why they don’t get as much Age Pension as their friends. The obvious reason is that their financial circumstances are different but often people aren’t aware of some simple things that could change their eligibility.
Most part pensioners find their entitlement to a pension is impacted by the assets test. How does that work? For every extra $1,000 you have in assets in the “part pension zone'' your age pension declines by $3 per fortnight or $78 per year. A couple with $100,000 less in assets could get $7,800 per year more in Age Pension - a big difference!
So, if you have less assessable assets you get more of the part pension. On the other hand, you also don’t have the assets anymore. That’s why many people talk to financial planners about whether they can do anything to “optimise” their age pension.
Here are some strategies that are often considered. We’re not saying they’re right for you, but they are strategies that are sometimes used.
About 17% of people who use Retirement Essentials’ eligibility calculator still have a home mortgage. Many of these people also have some money in the bank, in super or perhaps other investments.
Centrelink doesn't care that you have a mortgage against your home, even if it is an investment loan, as it isn’t classed as an assessable asset. In simple terms if you had $200,000 in the bank and a $200,000 mortgage, Centrelink will calculate that you have $200,000 in financial assets and reduce your entitlements accordingly. If you used the $200,000 to pay off the mortgage then you will have $0 in financial assets and you will most likely get more age pension (up to $15,600 more per annum for a couple)
People that use their savings or investments to reduce or pay off their mortgage are likely to benefit in a couple of ways:
● Their outgoings will decrease as they don’t have mortgage payments
● Their Age Pension payments will most likely increase as their assets will be less
On the flip side, their investments will be reduced so depending on their circumstances they won’t always be better off.
You don’t want to spend your hard earned savings needlessly but if you are planning some home improvements or a renovation you will find that the savings you use to pay for this will result in your assets being reduced which could improve your Pension and the increase in the value of your home won’t be assessed as an asset.
Some people might be tempted to give some or all of their savings away in the belief it will increase their entitlements. Centrelink controls this very tightly and there is a limit of $10,000 a year and $30,000 over 5 years. If you gift more than these limits Centrelink will assess you as if you still have that money. Not only don’t you have the money but your pension will also be reduced.
So there are a couple of simple things you can do but as always, seek some advice before taking any action because everyone’s circumstances are different. If you want to see how a few small changes might affect your entitlements you can always check the free Retirement Essentials eligibility calculator here.