One of the most common questions that I receive is this one:
I have majority of my savings invested in a superannuation fund.
Is Centrelink counting that money when calculating my government benefits or not?
The answer should be simple one could argue, but as always with superannuation rules and most certainly with Centrelink rules it varies from case to case,
but if you understand the rules or if you ask for the appropriate advice, you could use those rules to your advantage.
So, what benefits could be affected by the value of your super savings?
Well, the main ones that obviously immediately come to mind are Age Pension, DVA Pension, Disability Pension but also such benefits as Low Income Health Card.
So today I will answer that dreadful question:
How and when does Centrelink counts your super and is there anything that you can do about it?
My name is Katherine Isbrandt from About Retirement, I am Certified Financial Planner and you are watching About Retirement TV,
the place where you can get all the information that you need if you are preparing for retirement and wish to improve your financial outcomes
or if you have already retired and your goal is to maximise your savings, your government benefits and minimise tax for example
in situation such as your Income tax or Capital Gains tax if you are planning to sell some assets.
Before or during your retirement.
As most likely you know, superannuation for most is the second biggest asset and for some it can actually be the biggest asset they own.
But when you wish to be eligible for a government benefit, you really have to know the rules
how those savings are treated and when they are counted and when they are not.
So, let's start with the basics - superannuation savings can be either in the accumulation phase or in a pension phase.
Just a couple of weeks ago I did a video about that very topic: Accumulation and Pension phase of Super and which one is better.
So, if you are unsure, go back and watch it, I will link it at the end of this video, as well as in the description below this video.
And now that information is the main decision point for Centrelink and the government when counting
or not counting your asset for whatever benefit you wish to be eligible for.
If you are below the Age Pension age any money you have in the superannuation accumulation phase, Centrelink will not count,
neither under Income Test nor Assets Test. So whatever balance you have in a superannuation accumulations phase,
until such time that you reach your Age Pension age, those savings are not assessed by Centrelink, therefore it is a perfect and legal hiding place of your money.
If you are below the Age Pension age - any money in your Super Pension phase is fully assessed by Centrelink.
So please be very careful, even though you are below the Age Pension age,
if you move money from your superannuation phase to a pension phase, your savings are fully assessed by Centrelink.
So, what happens when you reach the Age Pension age, or if you are already older?
Well, if you are above the Age Pension age, your money in the Pension phase is still counted,
but now all the savings you have in a superannuation accumulation phase are counted as well.
So, at this age superannuation no longer works as your hiding place for your savings the party is over.
All those assets are now being assessed and will most likely impact the level of the government benefit you wish to have.
So, is there anything that can be done to improve the situation or your eligibility?
Well, let's look at the very first scenario, being below the Age Pension age.
Let's meet Andrew who is a homeowner just turned the age of 60 and he is on Disability Pension.
He has $350,000 in his super fund accumulation phase and has contents of $10,000 a car of $10,000 and additional $20,000 in his bank account.
Till now for the purpose of calculating his Disability Pension eligibility, Centrelink would only calculate his contents, car and savings in his bank account.
But Andrew was finding living on the Disability Pension alone of $987.60 per fortnight a bit difficult and restrictive,
especially knowing that he has all those superannuation savings just waiting to be used.
Someone told him that he could move those savings to an income stream and what's more this would be a tax free income for Andrew to enjoy.
Well, Andrew loved the idea of getting a little bit of extra income, so he moved all his superannuation money to a pension fund.
The superannuation people told Andrew that his minimum payment will be 4% of the starting balance,
so Andrew was looking forward to his Disability Pension of total of over $25,000 and his extra superannuation pension income of additional $14,000.
That is a total of almost $40,000pa. Finally, I can start enjoying my life, Andrew thought.
But then to his horror he received a letter from Centrelink advising him that his Disability Pension has been just reduced
due to Assets Test and he just lost $8,580 of his annual Disability Pension payment.
As you know as a single homeowner, to have the full Pension, your total assets cannot exceed $280,000,
but by moving this superannuation from accumulation phase to a pension phase, Andrew increased his total assets up to $390,000, which is excess of $110,000.
So, what can Andrew do to have the full payment from Disability Pension while still enjoying an extra income from his superannuation?
Well, Andrew can revert part of his money back to superannuation accumulation phase to legally “hide" that money all over again.
By putting enough funds back to his super Andrew is again eligible for the full Disability Pension benefit.
Now he can go back to his superannuation pension people and ask for that extra income he really wants to have.
So, what is the outcome? Andrew can have now his full Disability Pension, extra income from his Superannuation income stream,
plus the balance of his reverted superannuation will be growing over time.
Have you seen the most popular video on my channel yet: 9 ways to legally hide money from Centrelink,
maybe it is worth watching or re-watching? Since we are talking about legal ways of hiding money from Centrelink.
What can you do if you are above the Age Pension age, and you can no longer hide money in your superannuation accumulation phase?
Well, maybe you are lucky, and you can use your younger spouse that can help you.
Let's meet Garry who is 67 and Lora who is 58.
Garry just applied for his Age Pension, but he is only going to get $115pf because of the size of his superannuation of $700,000.
They also have money in the bank account, contents and a car totalling to $70,000 plus Lora has another $500,000 in her superannuation fund.
Gary could withdraw portion of his superannuation and contribute to Lora’s super and improve his Age Pension that way,
but smartly before jumping into this, Garry decided to get full financial planning advice.
It is so very easy to make a costly mistake because you need to consider the following:
1. Your Overall income needs
2. How much to actually withdraw from super?
3. How much can be contributed to Lora?
4. What type of contribution to make?
5. What is the sweet spot between the balance to be hidden in Lora's super as opposed to the balance necessary to provide income and maximise Age Pension?
And now the very important factor to consider is the fact that once funds have been contributed to Lora's super this money no longer belongs to Garry,
therefore one has to feel very comfortable giving funds away, even to a spouse.
Also, there could be an issue to have access to those funds while it is sitting in Lora's super.
She needs to meet conditions of release to have access to those funds.
As you can see not everything is so simple, and there are other things that need to be considered before swapping money around.
If you do not have a younger spouse, then the situation changes and a more sophisticated strategies might need to be considered,
but that again should be subject to the full advice, as the strategy might be different for different people.
In retirement planning there is no such thing as one size fits all, or more precisely, one solution that resolves all problems for everyone.
You really need a very personalised advice to get the best outcome in your situation.
I hope you enjoyed this video, and it has open up a new way of thinking.
If so, please give this video a LIKE and SUBSCRIBE to my channel not to miss my next video.
If you wish to learn more about retirement, superannuation, government benefits and more, visit my website AboutRetirement.com.au and while you are there browsing,
sign up to my newsletter to stay up to date with all the changes that can impact your retirement.
If you would like to book a meeting with me, on every page is a button BOOK A MEETING that will take you to my calendar
and you can choose the date that suits you to have a private chat with me.
And now, those two mentioned videos to keep on watching and learning: the first Accumulation and Pension phase of Super
Please watch to understand the difference between them and which one is better.
The second video recommended today is the most popular: 9 ways to hide money from Centrelink
Enjoy and I will speak with you in my next video, bye for now.