‘How can a self-funded retiree access to the side-benefits of the pension?’

Sep 14, 2020
This self-funded retiree wants to have his cake and eat it too when it comes to the pension. Source: Getty.

Q: I’m a self-funded retiree and I understand that I’m not going to receive an Age Pension but would love to understand how self-funded retirees could structure their affairs to receive even a $1 pension entitlement that would then give them access to the many other benefits pensioners receive, such as the Seniors Card. Is this possible?

A: The Commonwealth Seniors Health Card (CSHC) is available to Australian residents of pensionable age, and gives access to cheaper medicine under the Pharmaceutical Benefits scheme, plus discounts on utilities, rates, public transport fares and some health costs, including dental and eye care.

The criteria are simple; you must be of Age Pension age but not eligible to claim a pension, and you must pass an income test. As of September 10, the income test was $55,808 per annum for a single and $89,290 per annum combined for a couple. The income used is adjusted taxable income (ATI) plus deemed income from your superannuation. There is no assets test.

The easy way to check if you qualify is to go to my website and use the deeming calculator. You will discover that assets of $2.5 million for a single person provide a deemed income of $55,190 a year, which is just under the cut-off point, and for a couple it is just on $4 million (these figures don’t quite match due to rates changing). Simply add your deemed income from super to your ATI to check if you are eligible for the CSHC card.

Q: I have retired but am not yet old enough to receive the Age Pension so am living off my savings. I have an investment property that I am in the process of selling and after repaying the mortgage and paying capital gains tax, I should be left with $190,000 from the sale proceeds.

A: Is it smarter to use these proceeds to pay off the $150,000 mortgage on my home and put the remaining $40,000 into superannuation, or put the full $190,000 into super? Or divide the money roughly equally to pay some of the mortgage and place a more substantial amount into super? (In case this has any bearing on the issue, I currently rent out my home for $340 per week and live in a converted loft above the garage.)

If you have organised your affairs well, your home loan interest rate should be under 3 per cent. One would hope that your superannuation can do better than that on returns in the medium- to long-term. Therefore, I would suggest you kept the mortgage on your home – the interest will help to offset any tax you may pay on the rent receipts – and place the money in super. Given your age, which would appear to be at least 60, lack of access to superannuation should not be an issue for you.

If you’ve got questions about retirement income or about downsizing in retirement, don’t miss our FREE, online masterclass at 1.00pm AEST on September 22 with veteran finance guru Noel Whittaker, downsizing expert and author Rachel Lane and Kate Melrose, an expert on land-lease communities at Ingenia Lifestyle. Click here to register to attend.

IMPORTANT LEGAL INFO This article is of a general nature and FYI only, because it doesn’t take into account your financial or legal situation, objectives or needs. That means it’s not financial product or legal advice and shouldn’t be relied upon as if it is. Before making a financial or legal decision, you should work out if the info is appropriate for your situation and get independent, licensed financial services or legal advice.

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