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How to help your parents maximise their retirement incomes?

May 29, 2019

Welcome to Finance and Fury, the Say What Wednesday edition

Today’s question is from Robbie, Hi, and thanks so much for the podcast. Both Mum and Dad are retired however Mum is eligible for the pension before my Father reaches 65 (approx 5 years) however Their combined assets puts them over the threshold to claim the pension. Is it possible for them to transfer money/assets to a trust, or gift money to a sibling to reduce their combined assets below the Centerlink threshold.

 

Relating this to a non-specific question - is it possible to transfer assets/money that a retiree owns, so as to be under the threshold to be eligible for the Centerlink Pension, and if so, is there a time this would have to be done by (does Centerlink look at the last 5 years or so of assets?)

 

Today:

  • Run through maximizing pension incomes
  • Little can be done to reduce assessable/deemable assets
  • Asset limit tests, gifting rules and transfer costs

 

Assets and Income tests:

  • Assessable assets over $387,500 for a couple starts to reduce fortnightly pension
  • Full reduction occurs when the total is $853,000
  • Non-assessable assets are superannuation accounts while below pension age and their own home
  • Investments are included net the loans
  • Income test is either what you get directly or deem you to be paid
  • Deemed is assumed percentage on investments
  • If investments get assessed, why not give it to someone else?

 

Gifting rules:

  • Treat transferring assets as a gift
  • Gift $10,000 a year before it is treated like an asset
  • There is a 30,000 cap over 5 years
  • So if someone is 5 years or so out, gifting a sum more than $30k, then in years 5 years out, or during AP – less than $10k p.a.

 

Other structures?

  • Can you set up assets ahead of time and build wealth there? No
  • Trusts don’t get around this
  • Centrelink would have a look to who has access to the trust
  • As long as anyone is connected to a trust, it is counted as theirs

The costs:

  • Transferring assets means you might incur costs
  • Depending on the level of growth – might have CGT
  • If you leave the direct shares in your estate, can transfer to children without CGT
  • These shares would still carry their original cost base
  • Payout super, but run into the gifting rules

Depending on the level you need to reduce your assets by to get the age pension, you can end up being in a worse position

Examples – General illustration purposes

  1. superannuation of $1.2M, 2x investment properties ($600k) and principle place of residence, cash $30k, cars and contents - $70k
    1. Total Assets - $2.5m in assets – Well off the $853k max limit
    2. Transfer property? CGT on the sale, whatever the gain is, halved, added to income + stamp duty (likely)
    3. Maximum age pension is $37k for a couple on the pension – Between the two properties and 5% incomes from super, talking about $90k p.a.
  2. Couple – One 65 and other 55, have cash of $50k, home contents and car - $50k, two supers, 65yo $550,000 and 55yo $200k – Assets of $650k now, 55yo super non assessed - $394Fn reduction - $10k p.a. – left with $7900p.a.
    1. Withdraw $300k from super, put it into 55yos – 3 year bring forward for NCC – after tax into super - $100k over three years
    2. Note – tax may be payable if you withdraw this early though – so won’t want to have to access before 60
    3. Now assets $350k, so under test – Full AP.
    4. Almost same net income – Except now most of it isn’t coming from your own account - $35,414 from AP and Income from $550k, or $35,651 p.a. from $350k and full AP – both over AP age, pensions gone, but at least $300k could sit away and grow over that time period

 

Tips on what to do to boost income in retirement

  1. Fully franked shares – boost retirement income
  2. Transferring superannuation into income stream phase
  3. Good way to get 42% more income from every dollar of franked dividend
  4. Be wary of death taxes, we have it on super but not personal assets
  5. Why do other countries have it?

 

Summary:

  • Age pension – if you aren’t eligible due to assets, you’ve probably paid a decent amount of tax along the way
  • Best not to rely on it if you have time to accumulate wealth
  • Some ways are in preparation, gift assets

Thanks for listening everyone, if you want to get in contact you can do so here.