Finance expert reveals nine ways to legally ‘hide’ your money to boost your age pension entitlement
Many Australians aren’t aware of how much their pension can impact their age pension entitlement, but a financial expert has revealed nine simple ways people can legally “hide” their money to boost their pension payments.
Retirement age directly affects how much your pension will be; hence it is important to understand the process.
Centrelink will look at how much you have and how much you earn, with your pension assessed under both means and means testing.
As a single homeowner, you can have a pension of up to $714,500 and still receive an age pension.
If you’re not a homeowner, the limit increases to $972,500.
The total super limit for couples is $1,074,000 if you are a homeowner and $1,332,000 if you are a non-homeowner.
SuperGuy Chris Strano says Centrelink will apply both the means and income tests to your finances, then base your age pension entitlement on the lower of the two outcomes.
“In other words, whichever test results in a lower retirement benefit determines what you get,” he said.
“For example, if you qualify for a full age pension under the means test, but only half as much under the assets test, you will only receive 50 per cent of the age pension rate because your assets are too high.”
Financial planner Katherine Isbrandt of About Pensions says there are nine simple things people can do to boost their retirement income.
1) Gift Giving
You can donate a maximum of $10,000 in a fiscal year and a maximum of $30,000 in a five-year period.
However, Ms Isbrandt warns that if you exceed the limit it will be considered asset deprivation and any balance over the allowable limit will be considered asset deprivation.
This means it will count against your income and assets test for five years as if you continued to hold the asset.
Examples of gift giving include giving your daughter $10,000 to help renovate her home or selling your car to your nephew for $5,000 when the market value of the car is $20,000.
2) Home exemption
Your home, regardless of its value, is completely exempt from the asset test up to the first two hectares it sits on.
“So if you really have a lot of assets and you really want a part-age pension, you can buy yourself a new, bigger, better and more expensive house,” Ms Isbrandt said.
“This is one of the easiest solutions, but whether it’s the best solution for your overall retirement income needs is another matter.
“If you are renting and have a lot invested in super or otherwise, then it makes more sense to buy a home, but this needs to be calculated based on your personal situation and your personal income needs and future financial plans.”
3) Renew your home
If you have extra money, you can invest some of it back into your current home.
“Any money spent to renovate or repair your home will form part of its value (and therefore) be exempt from Centrelink testing,” Ms Isbrandt said.
4) Pay off your mortgage
Many retirees still have mortgages on their homes, but Ms Isbrandt said people should consider paying off their loans.
“Your mortgage continues to charge you interest… and you have to meet ongoing repayments,” he said.
“But at the same time, your savings are attracting notable rates.”
This means your pension may be reduced.
“This is a huge double loss for you,” Ms. Isbrandt said.
5) Down payment expenses
Ms Isbrandt said you could also pay for some expenses in advance, such as home and car insurance, as well as your private health insurance and holidays.
“Just think outside the box,” he said.
6) Funeral expenses
“We all know that the only things guaranteed in life are death and taxes, so if you know death is inevitable, it makes sense to either prepay for your funeral or invest in funeral bonds,” Ms. Isbrandt said.
“You can invest up to $13,750 per person, or as a couple, in a funeral bond. You can each invest up to $27,500 in a bond or exempt asset that’s nearly double the value.”
“On the other hand, there is no limit to paying your funeral expenses in advance.
“For these expenses to qualify, there must be a contract between you and the funeral director stating that the service has been paid in full and payment is non-refundable.”
But he warned you that you will no longer be able to access that money.
7) Young wife is super
Ms Isbrandt said it was possible to “store” the money in the younger partner’s super account.
“Until your younger partner is eligible to apply for age pension, the balance of the pension fund will be completely exempt from any testing,” he said.
8) Purchase a specific type of annuity
Ms Isbrandt said: “This is another great idea to legally hide your assets from Centrelink, but… you need to know which test affects you most – the means test or the assets test?” he said.
A lifetime annuity can instantly boost your age pension because only part of your investment counts towards the means test.
9) Private disability foundation
Finally, there is a special type of trust where families contribute money for the long-term care and housing needs of a severely disabled person.
“Funds may be exempt from the assets test, subject to certain rules and limits,” Ms Isbrandt said.
