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Maximise your pension this financial year

Maximise your pension this financial year

When you're relying on the Age Pension to fund your retirement, every dollar you receive from your entitlement has an impact on your standard of living.

Your Age Pension is means tested using both an income and assets test, with the lower result being the age pension you are entitled to.

The assets test and income test limits may increase in January, March, July and September each year. 

To help you enjoy a more comfortable retirement, here’s some tips to make the most of the Age Pension rules.

Reduce assessable assets to boost your pension

Effective from 1 January 2017, your pension reduces by $3 a fortnight for every $1,000 of assets you own over the lower threshold.

Consequently, it might be worth looking at ways to lower the value of your assessable assets to boost your pension.

Here are some options:

  • Top up your spouse’s super. If your spouse has not yet reached Age Pension age, their super isn’t counted towards your combined assets. So one way to reduce your assessable assets could be by making a contribution to your spouse’s super while they remain under pension age.
  • Gift money to your children or grandchildren. You’re allowed to make financial gifts of up to $10,000 a year, or a maximum of $30,000 over five financial years. This amount won’t count towards your assessable assets, but if you go over the cap, the excess will be assessed as a ‘deprived asset’ and counted towards your assets for five years from the date of the gift (it is also deemed under the income test during that time).
  • Increase the value of your home. As your home isn’t included in your assessable assets, it may be worth investing in renovations that could raise the value - provided you’ll get the additional investment back via a higher sale price if you sell the property in the future.
  • Buy a lifetime annuity. Lifetime annuities can provide advantages under the income and assets test as they are classified as long-term income streams that are not subject to deeming and have a reducing asset value. Depending on the annuity, Centrelink may reduce its assessable value by a deduction amount every six months. At the same time, there is a benefit of a regular income from the annuity into older age.
  • Prepay your funeral expenses. If you pre-purchase a burial plot, pre-pay your funeral expenses or purchase a funeral bond of up to $13,0001, the amount you spend will reduce the value of your assessable assets.

Additionally, it is recommended that you revalue your assets and update Centrelink with the new valuations as household items and motor vehicles in particular, lose market value over time. More importantly, these valuations could be worth checking now as many retirees have not reported changes in the value of their household goods for some time.

Diversify to include exposure to growth assets

Another approach to boosting your pension is to consider taking more risks with your investments by diversifying between both defensive and growth assets.

If you expose your investments to growth assets, such as shares, they can produce higher returns over the longer term. Investments that have provided higher returns over the longer term have also tended to produce a wider range of returns. So while there is a higher chance of short-term losses, growth assets can also give you a better chance of achieving your long-term objectives.

Why you should speak to a financial planner

While you’re seeking to enjoy a comfortable retirement lifestyle, it can be tricky to know exactly how the new thresholds might affect your financial position.

That’s why it’s worth speaking to a financial planner. By talking through your options and making any adjustments to your financial strategy to adapt to the new thresholds, your financial planner can help you plan to still meet your retirement goals.

1 The Funeral Bond Allowable Limit as at 1 July 2018 is $13,000 and is indexed in line with CPI pension increases every 1 July

This article contains general advice only. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial planner before making any financial decision based on this information. This document has been prepared by Commonwealth Financial Planning Limited ABN 65 003 900 169, AFSL 231139, (Commonwealth Financial Planning) a wholly-owned, but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124. Commonwealth Financial Planners are representatives of Commonwealth Financial Planning. Information in this article is based on current regulatory requirements and laws. While care has been taken in the preparation of this document, no liability is accepted by Commonwealth Financial Planning, Commonwealth Financial Planning related entities, agents and employees for any loss arising from reliance on this document. Taxation considerations are general and based on present taxation laws. You should seek independent, professional tax advice before making any decision based on this information. Commonwealth Bank is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and you should seek tax advice from a registered tax agent or a registered tax (financial) adviser if you intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law. Before you make a decision about your combining your super if you multiple accounts, you should compare the costs, fees, risks and benefits of each super fund. It makes sense to consider whether you can replace any insurance cover you may lose when you bring your accounts together, as well as any costs for withdrawing from other super funds and any investment or tax implications.