To deem or not to deem - that is a question.
As I keep on receiving this question all the time, I thought today we will go over different asset types and explain what assets are subject to deeming by Centrelink
for the purpose of assessment of your Age Pension eligibility and how Centrelink deals with assets that are not deemed.
It is crucial for you to understand the different treatments and assessments by Centrelink, so you can prepare yourself in the best possible way
with the most appropriate assets.
My name is Katherine Isbrandt from About Retirement, I am Certified Financial Planner, and you are watching About Retirement TV,
the place to get all the right information to be best prepared for your retirement or to improve your retirement if you are already there.
Based on many questions that I receive, I see this as a major issue for many, which assets are subject to deeming and which are not?
And if some assets are not deemed, how are they assessed?
I understand it can be confusing, so let's go over this information asset by asset to make the understanding and decision so much easier for you.
1. Family home - your principal residence
You might think, this is one asset that is just easy and straight forward.
Well, in most cases it is, as a home is usually an exempt asset for Income and Assets Tests, so it is one asset we really like, as it can be worth a lot of money
and yet has no impact on your Age Pension payments at all.
But sometimes it isn't and you better be well prepared for such eventuality. For full explanation about when your home might be subject to those tests,
just watch my video: Is my home always exempt from Age Pension
2. Cash in bank
Cash in your bank account is subject to deeming rules. But I still get many questions that are showing that deeming is misunderstood.
So let's explain what deeming actually is and how it works.
Deeming is the assumed rate of return on the value of your asset. The easiest way to explain is with some examples:
Let's meet Steve.
Steve is a single pensioner that has $100,000 in his bank account and he wonders how Centrelink would count his bank savings under deeming rules.
Well, for singles - the first $56,400 is deemed to earn 0.25%, therefore $141.00pa, and the balance over that amount is deemed at 2.25% therefore $981.00pa .
So the total deemed income for Steve out of his $100,000 in a bank account is $1,122pa.
Now let's meet David and Louise, who also have $100,000 in their bank account.
But they are couple, not a single but couple.
Being a couple, their deeming rules are a little bit different, as their deemed income on the first $93,600 is deemed at 0.25%,
therefore $234.00pa and the balance of $6,400 is deemed at 2.25%, which is $144.00pa.
Therefore as a couple, their deemed income from $100,000 is $378.00pa.
So how does this really work in practice?
It means if your $100,000 earns less than the calculated deeming rates, that's really your bad luck,
Centrelink will still count that level of return, whether you earn it or not.
Well, if you don't, well, you better pick up your game and get the right return on your money.
So you might think it is negative.
But, let's turn this around, if you are smart and you get a return of 3%, 4%, or 10% or whatever, it is that is your good money management
of course, don't go crazy with the financial risk,
but from the point of view of Asset Test assessment, Centrelink will let you earn this return without penalising you for being smart
and getting higher returns than deeming rates.
For more information about Deeming Rates, just watch this video: Age Pension Deeming Rates - UNFAIR RULES
3. Shares
From the perspective of the Age Pension assessment, your shares are also subject to deeming rates, and this is a great example of an asset,
where you are able to earn a much higher income than just deeming rates, and yet you are not penalised for it.
But beware, if you start reinvesting those dividends and grow the underlying asset, it will increase in value, therefore will impact on Asset Test.
And once your asset increases in value so will the Income under deeming rates.
4. Superannuation
Any money in super is also subject to deeming rates once you pass the Age Pension age.
The only exception is superannuation balance that you have with your younger spouse.
And by younger spouse, I mean below the Age Pension age, where the superannuation balance is fully exempt and not counted under both
Income and Assets Test.
I have made many videos about investing into super, you can learn a great deal about superannuation contributions and various strategies using super.
Just check my playlist for the subject of superannuation and retirement investing.
5. Income Streams - such as Account Based Pensions
In most cases Account-Based Pensions is also subject to deeming rates, but if you have a pension fund that commenced before 1st January 2015,
please hold on to it, don't move it, don't rollover, please do not do anything until you receive the full advice.
This could be your little jewel that can really assist you with Income Test in a long run.
Both superannuation and account-based pensions under the Assets Tests are counted as full value.
6. Define Benefit Pension
As this type of a pension fund does not have the withdrawal value, Centrelink is not including it in the Assets test,
however it is most certainly included in your Income Test and in most cases it is on the basis of $ per $, hence if you are receiving $50,000 income,
this is exactly what goes on your Income Test for the purpose of calculating your Age Pension entitlement.
7. Holiday homes
If you own another property and you use it as the family get away, then the Age Pension treatment is very easy.
Your property is counted under the Assets Test, but not the Income Test.
8. Investment Property
If you own the investment property, in most cases Centrelink will conduct their own property valuation, just like with your holiday home.
The full property value is use in the Assets Test. Under the Income Test, if the property is rented, in most cases 75% of property rental
is calculated as your income under the Income Test.
Your income could be decreased by for example your mortgage repayments. For more information about property and its impact on Age Pension,
watch my video: Is property a good investment in retirement?
9. Overseas Pensions
It really makes no difference which country your overseas pension comes from,
UK, Canada or India, your pension from your original country counts
and can reduce your Age Pension.
And you don't really have a choice, Centrelink will force you to apply, otherwise they can cancel your Australian Age Pension eligibility altogether.
And in most cases Centrelink counts your overseas pension $ per $, meaning that if you receive $1,000 of overseas pension,
that is exactly what will be counted under the Income Test.
But please remember that overseas pension income will vary from payment to payment due to changes in the currency rate
10. Cars and other belongings
Those assets, just like your home contents or your cars or your trailers are subject to Assets Test only and not Income Test,
as they are not income producing assets.
11. Annuities
Those have a very special Centrelink Income and Assets test treatment,
depending on the commencement date, so I am not going over the full list.
You really need to speak with a financial planner to understand annuities and how they can help you to improve your Age Pension.
For more details, just watch: Annuities and your Retirement
I think I covered majority of main financial assets and non-financial assets we own that can impact your Age Pension.
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Also, don't forget to visit my website AboutRetirement.com.au where you can find lots of relevant information about superannuation,
preparation for retirement, income streams, Age Pension, and investing or so called wealth management.
And while you are there, sign up for my newsletter to be kept up to date with all the changes in Australia that might impact your retirement.
And now a short recommendation to watch further videos:
Don't take your home exemption for granted, watch this video
Is my home always exempt for Age Pension
The second recommendation is Annuities and your Retirement.
Can annuities help you in you retirement?
If unsure, just contact me for a chat.
I will talk with you in my next video, bye for now.