We have $1.2m in super. Should we try to qualify for the age pension?
Idea
My wife and I disagree on whether we need to adjust our assets to qualify for part-age pension. I am 67 years old and still working full time with a good income; He is 56 years old and works part time. We are mortgage-free with about $1.2 million in retirement total. He thinks retirement benefits are challenging, while I think we need to maintain a strong financial buffer against future risks. Which approach makes more sense?
Broad brush, in my view if you are eligible for age pension you are eligible, if you are not then you are not. Financial gymnastics aimed at getting a few more dollars from Social Security that you don’t actually need are not for me.
At the moment, your question seems to be a moot point given that you continue to study it. I’m guessing that your spouse will point to the opportunity that the 11-year age gap between you two presents. Any pension held in your partner’s name will not be taken into account under the age pension assets test for your application until your partner reaches retirement age.
There may therefore be an opportunity to transfer some of the pension savings currently in your name to his or hers, in order to obtain a temporary improvement in the means test for age pension.
However, you need to take into account that when you retire, your pension will be converted into a tax-free pension. If you take the approach of transferring a significant portion of your pension to your spouse for the purpose of maximizing the pension, then the portion transferred to his/her account will continue to be subject to capital gains tax at a rate of 15 percent. You need to crunch the numbers, but it’s possible that the pension earned will be more than the extra tax payable.
I think the idea of trying to equalize pension balances between a couple is a good idea, both from an equity perspective and for issues such as the transfer balance cap. It may also be a temporary retirement benefit for you when you retire, but I wouldn’t lay out these moves for that reason alone.
Our SMSF receives over $80,000 in compensation from the CSLR (Compensation Scheme of Last Resort) for past poor advice. How will this be taxed and what does this mean for us if we want to close the fund?
I’m sorry to hear you received bad advice, but I’m glad to hear that the system works as it should and that you are appropriately compensated when inappropriate advice is given by a licensed financial planner in Australia. CSLR is a program to which all licensed consultants contribute to ensure the protection of consumers.
My understanding is that your compensation payment will be taxed as income when it reaches the fund, so a 15 percent rate applies. However, you should confirm this with your SMSF accountant who will assist you with the liquidation.
I make $43,000 a year and I’m about 10 years away from retirement. Is it worth sacrificing salary for retirement?
Not exactly. Income tax between $18,201 and $45,000 is 16 percent. If you sacrifice part of your salary to the retirement fund, this money will be taxed at 15 percent when it reaches the retirement fund. So you saved 1 percent in taxes but lost access to your money until you were at least 60 years old.
You’d probably be better off making an after-tax contribution and then receiving the government’s $500 copayment.
Paul Benson is a Certified Financial Planner. Guidance Financial Services. He is hosting Financial Autonomy podcast. Questions: paul@financialautonomy.com.au
- The advice given in this article is general in nature and is not intended to influence readers’ decisions about investments or financial products. They should always seek their own professional advice, taking into account their personal circumstances, before making any financial decisions.
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Paul Benson is a Certified Financial Planner and host of the Financial Autonomy podcast.
