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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.

As a result of the new rules for the Age Pension assets test which are now in place, your entitlements calculated under the assets test may have gone up or down, or even been reduced to zero.

The assets test limits may increase in March, July and September each year and the latest limits are available on the Department of Human Services web site. 

But, with these changes comes opportunity, as there are ways to boost your pension under the new threshold rules.

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

Reduce assessable assets to boost your pension

One significant effect of the changes to the assets test rules is that the "taper rate" - the rate at which your pension reduces under the assets test with each dollar of assets you hold above the lower threshold - has doubled.

Previously, for every $1,000 of assets you owned over the lower threshold, your pension was reduced by $1.50 a fortnight.

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, if the threshold changes had a negative impact on your retirement income, it might be worth looking at ways to lower the value of your assessable assets to boost your pension.

For many people, these strategies will be twice as effective under the new rules compared with the previous rules. 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 $12,750 1, 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 in light of the Age Pension changes 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 adviser

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 adviser. By talking through your options and making any adjustments to your financial strategy to adapt to the new thresholds, your adviser can help you plan to still meet your retirement goals.

1. The Funeral Bond Allowable Limit as at 1 July 2017 is $12,750 and is indexed in line with CPI pension increases every 1 July

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Past performance is not an indication of future performance. Investors should consult a range of resources, and if necessary, seek professional advice, before making investment decisions in regard to their objectives, financial and taxation situations and needs because these have not been taken into account. Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information. Commonwealth Bank is also 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. Commonwealth Financial Planners are representatives of Commonwealth Financial Planning Pty Ltd ABN 65 003 900 169 AFSL 231139 a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 (the Bank). While potential SMSF investments have been illustrated within this content they do not represent a comprehensive suite of possible investment products and services within the guidelines pursuant to the SIS Act 1993 with ATO oversight.