It’s easy to become confused when trying to understand how your assets might affect your retirement income. Are they personal assets? Assessable assets? Or deemable assets? There are many ways of defining assets, and there can be a lot at stake if you misunderstand or inadvertently misreport.
Today’s Jargonbuster explains personal assets and how they are viewed when it comes to Age Pension entitlements.
Broadly speaking, personal assets cover anything an individual or household owns in their own name, or joint names. So this can be money, investments, cars, insurance, works of art and more.
As you will be aware, Centrelink assesses your Age Pension eligibility in two ways using both an income and an assets test. The critical point is that some assets count towards the assets test only, and others are taken into consideration for both the assets test and are then also deemed to contribute towards your total income.
For the purpose of planning or managing retirement income, it’s easiest to understand personal assets in the following way:
Financial investments (assessable and mostly deemable)
These are financial assets which will be assessed by Centrelink in order to establish whether you meet the required assets threshold for the Age Pension. Most of these assets are also deemed to earn income, which will be used in your income assessment for the Age Pension as well. Such financial investments include:
- Cash on hand
- Bank accounts
- Term deposit accounts
- Managed investments
- Shares and securities
- Annuities and income streams
Separately, you may have personal assets which are not deemed, but can still be assessed under the assets test.
Such assets include
- Home contents (including furniture and appliances)
- Personal effects (including jewellery, laptops)
- Licences (taxi, commercial etc)
- Surrender value of life insurance policies
- Motor vehicles, caravans, boats
The asset which is the exception to the rule, and does not need to be declared, is your primary residence. Your home is not assessable, regardless of valuation.
All assets must be declared on your Age Pension application. But there are tips and traps of which you should be aware.
The actual value of your items is their market value – i.e. if you had to sell them all in a garage sale tomorrow (as opposed to replacement value). What would they really fetch? Most people do not have more than $10,000 of furniture and personal effects – but many will place a sentimental value which is much higher on their Age Pension application. This can end up costing them money as it could reduce their age pension entitlements.
Another common misconception is that Centrelink will update your assets declaration with annual depreciation. It does not. You will need to do this. It can be a very worthwhile exercise because, if, say, your car depreciates, so your assets will reduce. As long as you report this, you might then qualify for a higher pension payment. This happened with Tom who had failed to revalue his old Corolla. You will only benefit, however, if you go to the effort of updating these valuations with Centrelink.
Unsure about which assets to declare? Why not speak to one of our experienced consultants who will help you understand all the Centrelink rules?
As household costs continue to increase, it’s important that you stay totally up-to-date on your entitlements and ensure that you are maximising your fortnightly payments.
This article is provided by Retirement Essentials Representative Number: 001260855. We are an authorised representative of SuperEd Pty Ltd ABN 88 118 480 907 AFSL #468859. This information is not intended as financial product advice, legal advice or taxation advice. It does not take into account your personal situation, goals or needs and you should assess your own financial situation, consider if the information is suitable for you and ensure you read the relevant Product Disclosure Statement (PDS) if you choose to make any changes to your financial situation. It is always advisable to consult a financial adviser before making financial decisions.