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Optimising your pension

Many of our customers often wonder why they don’t get as much Age Pension as their friends. The obvious reason is that their financial circumstances are different but often people aren’t aware of some simple things that could change their eligibility.

Most part pensioners find their entitlement to a pension is impacted by the assets test. How’s that?  For every extra $1000 you have in assets in the “part pension zone” your age pension declines by $3 per fortnight or $78 per year. A couple with $100,000 less in assets could get $7,800 per year more in Age Pension – a big difference!

Here are a couple of things some people consider to increase their pension. We’re not saying they’re right for you, but they are strategies that are sometimes used.

Reduce or pay off your mortgage

About 17% of people that use our eligibility calculator still have a home mortgage. Many of these people also have some money in the bank, in super or perhaps other investments.

Centrelink doesn’t care that you have a mortgage against your home, even if it is an investment loan, as it isn’t classed as an assessable asset. In simple terms if you had $200,000 in the bank and a $200,000 mortgage, Centrelink will calculate that you have $200,000 in financial assets and reduce your entitlements accordingly.  If you used the $200,000 to pay off the mortgage then you will have $0 in financial assets and you will most likely get more age pension (up to $15,600 per annum for a couple).

People that use their investments to reduce or pay off their mortgage are likely to benefit in a couple of ways:
Their outgoing will decrease as they don’t have mortgage payments
If they don’t already receive a full Age Pension any pension payments will most likely increase as their assets will be less

On the flip side, their investments will be reduced so depending on their circumstances they won’t always be better off.

Renovate your home

You don’t want to spend your hard earned savings needlessly but if you are planning some home improvements or a renovation you will find that the savings you use to pay for this will result in your assets being reduced. Your pension could increase and increase in the value of your home won’t be assessed.

Be careful about gifting

If you give money away, for instance to your kids, it will also reduce your assessable assets but you need to be careful. Centrelink controls this very tightly and there is a limit of $10,000 a year and $30,000 over 5 years.  If you gift more than these limits Centrelink will assess you as if you still have that money.  Not only don’t you have the money but your pension will also be reduced.

So there are a couple of simple things you can do but as always, seek some advice before taking any action because everyone’s circumstances are different.
Even if you are too young to apply right now you might want to see how a few small changes might affect your entitlements.  You can check this by using our free eligibility calculator.