Many people find their way to our website by searching using keywords such as ‘maximising age pension’ or ‘increasing centrelink payments’. In my face-to-face encounters or phone calls, getting the most out of government payments is regularly discussed. I thought l’d outline some of the strategies that are considered. While there are more, these are the most common ones.
Before discussing the few remaining strategies that can be used to increase government income support, let’s have a look at two strategies that were available previously, that I still get questions about today:
- Annuities – These income stream products were used regularly up until 20th September 2004. Until this time, any amount used to purchase a ‘complying annuity’ (that is, one that met a range of criteria around investment terms and residual capital value) was exempt from the Assets Test. They were a regular part of many people’s retirement planning, although now with money invested fully assessable under the Assets Test and often inaccessible as a lump sum they are no longer any significant benefit for pension purposes.
- Family Trusts and Private Companies – From 1st January 2002 assets held in these entities came under the governments microscope. Prior to this, people who held their assets under trust or company structures often received greater pension entitlements as these assets may have been excluded from the Assets Test. The change in legislation in 2002 now sees people who hold assets in these entities often treated exactly the same as if they held the assets themselves. That is, there may be no significant advantage to having these structures in place for maximising government benefits.
These rule changes in my view were entirely fair. Essentially people with the same amount of assets now receive the same amount of government support, regardless of how they have their assets structured.
So What’s Left?
Perhaps the simple answer is – not much. The above strategies could be implemented with many hundreds of thousands of dollars, making them very popular and very effective at improving government entitlements.
The remaining strategies can be split into 2 categories:
- Strategies that everyone can consider; and
- Strategies that those meeting certain criteria can consider.
The strategies that everyone can consider have negligible impact on the amount of pension payments you can receive, and as such, may not be worth the effort:
- Gifting – up to $10,000 can be given away per financial year, up to a maximum of $30,000 in a 5 year period. This $10,000 no longer counts as an asset. I have discussed the concept of gifting in a previous article “I’m Only Allowed To Give Away $10,000!
- Funeral Planning – either up to $13,500 can be placed into a Funeral Bond or a pre-paid funeral plan can be purchased. These assets are exempt from the Assets and Income Tests. These can make sense for more reasons than just maximising pension entitlements.
There are a couple of other strategies that could be considered by people in particular situations:
- Pensioners with younger spouses – Money invested in superannuation for those under Age Pension age is exempt from Centrelink/DVA assessment. Therefore, if you are of pension age, and your spouse isn’t yet, there may be benefit in transferring assets to their superannuation. Bear in mind, this will only be beneficial until the younger spouse turns Age Pension age, and probably requires planning before either of you turn Age Pension age.
- Income Stream Payments – People who have higher incomes that preclude them from pension entitlements may find that income from an Account-Based Pension is treated more favourably than deemed income on the same investments. Account – Based Pension payments include a capital component that is exempt from the Income Test.
As you can see, this can be a complex area requiring financial advice. If you would like to increase your pension entitlement, or find yourself ‘just over the Asset or Income Test limits’, talk to us today for expert advice on your options.