How to maximise SAPTO, manage superannuation, and understand centrelink requirements in retirement

Question: I have a question regarding the Senior and Pensioners Tax Offset or SAPTO. I have been told that a single person can earn $35,813 per year, before they are required to pay tax. I want to know if this figure includes the age pension which I understand, is taxable income. On a full pension of say $25,000 is it correct that I can only earn $13,818 per annum?

For seniors, the calculation of tax is complex, partly because of the ever changing numbers and the various components that make up a senior’s income. The current rate of a full single age pension payment works out to be $29,874 per annum. However, that payment includes the base pension of $28,337.40 which is taxable and $1,536.60 representing the tax free components which include pharmaceutical, telephone and energy supplements. In effect, that leaves a senior on a full pension with $7,475.60 of tax free “wriggle room”. This is why financial planners prefer to make use of superannuation and in turn, account based pensions to generate retirement income for seniors. All income paid from a taxed superannuation source whether as a regular payment or as a lump sum withdrawal is completely tax exempt. In account based pension phase, the earnings are also tax free meaning that properly structured, a senior need pay no tax at all in retirement.

Question: I’m a single 63 year old female and currently have approximately $220,000 in superannuation invested in the cash account. I work part-time as I still have a small $80,000 mortgage on my home and have minimal savings. Life has thrown a few curve-balls my way recently and I’m considering future options. Apart from the fact that there is very little growth, does the fact that my superannuation is held in a cash account limit my choices in any way?

It is worth exploring a few options with respect to your overall strategy. Without question, your mortgage interest cost, probably about 6 percent, is higher than the after tax and fee returns on your superannuation cash account, probably about 2 percent. If you have ceased any job since turning 60, you could access $80,000 from your superannuation account and use that to pay out your remaining mortgage. Alternatively, you could consider starting a transition to retirement account based pension and access up to 10 percent of the account balance to accelerate the mortgage repayments. Once the mortgage is clear, the mortgage repayment amounts could be redirected to super to replenish the account. While I understand the uncertainty and concern you may have with investment markets, the returns from a superannuation cash account will not generate sufficient returns to even match the inflation rate. A reasonable compromise might be to explore a capital stable or capital secure option. While still exposing you to some short-term market volatility, the average return over the next 4 years or so until you qualify for an aged pension, should see you better off.

Question: We are a self-funded retired couple who may or may not be eligible for a Centrelink part pension. One of our super accounts is currently in a State Government run untaxed superannuation fund and the other in a Commonwealth untaxed scheme. If we were to apply for a Centrelink Age Pension do we declare the pre-tax or after-tax balance?

You will need to declare the current pre-tax balances as shown on your statements. These assets are regarded as financial assets and as such, will be assessed under both the asset test and the income test. As a couple, you are likely to be affected by the asset test unless you have additional income from employment, investment properties or overseas pensions. Your combined assets will need to be less than $1,047,500 to qualify for a part pension. This value excludes your family home, provided it sits on less than 2 hectares. You can use second-hand values for your contents and the private sale values for your cars.

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.