Not yet Age Pension age? The rules still apply

Last week we celebrated the great work that Steven Sadler does helping Retirement Essentials members with their Age Pension entitlements. This week the spotlight is on Sharon Sheehan and the way that her financial advice can make a big difference to the income of our members. 

One common mistake Sharon has noticed is how many members are confused by the term ‘superannuation account’. Recent research from AMP suggested that 70 % of older Australians don’t know what an Account-Based Pension is. Given that this is the most common mechanism for Australians to withdraw funds from their super account, this could be considered surprising. But Sharon didn’t think that was necessarily the case. She believes that much of the confusion comes when super funds give different names to their  Account-Based Pensions, for instance FirstChoice ( Colonial First State) or Retirement Income Account (ART) or Choice Income (AustralianSuper). It’s not exactly easy to discern that this is your own super, in draw-down mode. And if it’s not that easy to distinguish this as an income stream, this might lead to misreporting when you decide to apply for any government entitlements.

Another aspect of retirement income that Sharon thinks is not well understood, is how Centrelink views the super savings of both members of a couple. Just because you haven’t reached 67 doesn’t mean that the rules won’t apply. The Centrelink assessment of super for those below Age Pension age is well worth understanding when considering your retirement income needs

Is your super exempt?

Superannuation whether in an accumulation account or in an income stream is an assessable asset for someone applying for an Age Pension.  However your partner’s superannuation may not be an assessable asset.  This occurs when the partner is under Age Pension age and their super is still held in an accumulation account. In this circumstance their super is not accessible. If however they had started an income stream it would be assessed by Centrelink   

Recently Janice and Simon met with Sharon to understand how they could go about applying for the Age Pension. 

Would they be eligible for anything? 
How would Centrelink assess their bank accounts and superannuation?  

Janice turns 67 next month and has resigned from her role as a part-time teaching assistant.  Simon has just turned 64 and wants to stop work when Janice does.  They needed to understand how to go about creating an income stream from their superannuation and whether this would mean they might miss out on an Age Pension.

This can be tricky to understand, but Sharon was able to explain that superannuation is an individual form of savings. But Centrelink assesses couples by looking at both party’s super savings combined.

Sharon explained the various eligibility rules, one in particular that Centrelink assesses superannuation from age 67 regardless of whether the money stays in accumulation or is used to create an income stream. But it is important to understand that if you are under age 67 and have superannuation in accumulation, it is not counted under Centrelink’s eligibility rules until it is used to commence an income stream. At that point, the balance of the income stream is both counted under the assets test and deemed for the income test. 

Sharon discussed Janice and Simon’s retirement income goals. She next used the Retirement Essentials Safe Spending Simulator to compare two different strategies: 

• two income stream products and the amount of Age Pension (for Janice)

versus 

• one income stream product and the amount of Age Pension (for Janice)

If both members of the couple had moved their money from accumulation, the resulting two income streams meant Janice would receive around $1,500 per annum less in Age Pension income over the next three years. The Safe Spending projection showed that the $55,000 per annum they want to spend could be met without converting Simon’s super to an income stream and leaving it in accumulation over the next three years until he, too, is eligible for an Age Pension.  

The decision Janice and Simon now need to think through is whether they should use Simon’s super now, converting it to an account based pension   or leave it sitting in accumulation until he is 67.  As we mentioned earlier they will receive an extra $1500 a year in Age Pension payments if  it is left  in accumulation.

There are, of course, other considerations that will feed into their decision-making. Tax implications on the savings in accumulation rather than decumulation is one. Sharon was also able to share projections on these amounts so that Janice and Simon have all the information they required to make a good decision.

Let’s give the last word to Sharon who says that one of the most satisfying things in her role is when clients like Janice and Simon say that she’s given them the confidence to move ahead with their next life stage.

Everyone’s situation is unique. Talking through your own specific needs with our financial advisers can help to give you the confidence and comfort that you have potential options enabling you to have the retirement lifestyle you want. Two specific advice consultations cover the rules that Janice and Simon needed to know. These are:

• Understanding more about super (Assess the options to help make your super work better for you).

• Maximising your entitlements (Assess any changes you might be able to make to maximise your Centrelink entitlements)

Did you know about this rule?

Did you already know about the way super is individual – but also combined – depending on who is viewing it? Do you think it is fair for a partner’s super to be assessed as well as your own if your partner is still working?