Superannuation can be complex at the best of times but it really hits its complexity stride when you want to retire and start an income stream. And getting across all the rules and how they apply to the Age Pension can be an absolute nightmare. Fortunately Retirement Essentials’ adviser Sharon Sheehan is not only up for this challenge but she thrives on it.
This week she was able to help Anna and Carlo to better understand the rules that matter for them. And then to use them to increase their annual benefits by nearly $8500 – plus a concession card.
Initially they came to Sharon seeking help to apply for a Commonwealth Seniors Health Card as they were firmly convinced that they were ineligible for an Age Pension.
Here’s some background
Like many Australians Carlo worked in the public service. In fact 2.2 million Australians are employed by either the Commonwealth or State public service. And if you are in the public service you might be in what is known as a Defined Benefit super fund – or a DB for short.
Now DB funds are even more complex than ‘normal’ accumulation funds and there are all sorts of different rules that can apply.
For example, when applying for the Age Pension
- A DB balance can be treated as an asset
- But if converted to a DB pension, it is only counted as income
- Sometimes that income is tax free
- Sometimes that income is taxable
This is in contrast to Account-Based Pensions where the balance is treated as an asset and you will have income deemed by Centrelink on that asset.
How did Sharon help Anna and Carlo?
As we mentioned, Anna and Carlo were seeking help to get a Commonwealth Seniors Health Card as they believed that they were ineligible for an Age Pension.
Carlo has a Defined Benefit super fund with a balance of $830,000, which he has converted to a Defined Benefit pension, paying $71,000 per annum.
In addition he has an Account-Based Pension of $226,000 which is paying him an additional income.
Anna and Carlo had a further $43,000 in other financial assets – making their assets $269,000 in total.
Sharon applied these rules to the assets and income of Anna and Carlo in the following way:
- The Defined Benefit of $830,000 transferred to a DB pension is now only treated as income of $71,000. It doesn’t count towards the asset test
- The $226,000 in the Account-Based Pension does count towards the assets test
- Income is deemed (by Centrelink) on the Account-Based Pension and also counts towards the income test
Where Carlo had made an error was believing he needed to declare the $226,000 total savings in his Account-Based Pension as well as the income he was currently receiving from this income stream. Wrong. He only needed to declare this money as an asset – Centrelink does the maths on the likely income and automatically applies it.
Our advisers tell us that this ‘double declaring’ is a very common mistake – and correcting it means many more people become eligible for the first time or receive higher payments.
The outcome
Sharon was able to update Anna and Carlo that:
- the $71,000 per annum income (from the DB fund) which is assessed under the Income Test,
- along with deeming on their total financial assets of $269,000 of financial assets
- will result in an Age Pension entitlement of $8,482 per year ($326 per fortnight) as a couple,
- Plus the very valuable Pension Concession Cards.
To say that Anna and Carlo were pleased with the outcome is an understatement. Sharon has now put them in contact with Steven, Head of Retirement Essentials’ Customer Service Team to now help fast-track their Age Pension application.
The moral to the story?
We don’t know what we don’t know and it’s easy to assume we have correctly declared assets and income when, in fact, we are ‘over’ declaring. Sadly no one is going to come and find you if you make such an error. It will probably bubble along unnoticed.
Happily Anna and Carlo were on the front foot in applying for a Commonwealth Seniors Health Card and it was this discussion that allowed Sharon to uncover their misunderstanding of the income and assets rules.
Said Carlo:
‘I am surprised, but pleasantly so, obviously. I started off thinking I had to count all the income and all the assets, but your explanation changes everything!’
As we said, not all super funds are the same. And in our experience, very few Age Pension applications are the same. There are so many rules and so much nuance in the application of these rules that it really does help to seek support and guidance.
The following two consultations are particularly helpful for those who are struggling with super definitions and rules, whilst trying to understand how super can combine with the Age Pension to increase their regular income:
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)
We’d love to share our insights and know how to help your retirement journey become easier.
And feel free to ask any other burning questions you may have about super and how it’s treated by Centrelink.
Isn’t the $71,000 income amount deducted by 10% by Centrelink when it’s assessed in the total income test.
Hi Ken, thanks for asking a great question! As mentioned in the article DBs can be complex and you are right that some get a 10% discount however not all.
I am a single widower aged 85yo, retired for 20years, and have a Signature Super term pension (annuity) with AMP, current value $70,000 plus a superannuation income-based pension account with Q Super / Q Invest to the value of $650,000.
These collectively return me an annual pension of approx. $70,000.
I receive no aged pension.
My question, do I have to pay any income tax on the $70,000 and while I am happy with my present financial situation is there anything I should do to improve it further/
many thanks
Tony Fox
Hi Tony, thanks for reaching out! In the majority of circumstances income from superannuation does not incur any personal tax. There are obviously a few limited exceptions though, but if you do not receive a ‘tax’ statement at the end of each year with a summary of tax withheld, or taxable income paid to you, then it is likely not something you need to worry about. However, for peace of mind you may want to speak to a tax professional. If you want to talk through your current financial situation to feel confident that you are in the right position, I recommend you book a General Consultation so we can talk it through in more detail, which you can book by clicking here. We can also give you a bit of guidance on what to look for in your statements regarding the tax question to help you figure out where you stand.
Hi there. It seems that there’s lots of things you can do with Super. We’re over Aged Pension Age, homeowners and have $1m in Super and three investment properties worth around $1.9m in total, producing about $ 55,000pa. I didn’t want to sell off any more properties (we used to have more, which we’ve sold), but the remaining ones at $ 1.9m total value exceed the Aged Pension Assets Test by about $1m (Assets Test limit $ 986,5000) so I don’t think we’re looking at receiving any pension. We could sell another and split the profit to make a contribution into our respective superannuation accounts. What do you think?
Hi Rob, you ask a great question. It appears you have done well to accumulate this level of financial assets to provide retirement income for yourselves, well done! Regarding your question about super, it is possible to make a contribution into super up to the age of 75, subject to contribution caps not being exceeded. However, by making a contribution into super from your potential investment property proceeds, you are effectively converting one type of asset (investment property value) into another (super). Both are assessable by Centrelink as an asset under the Assets Test.
The only difference would be if one of you was under Age Pension age, where super is an exempt asset (if it’s in accumulation phase). You state you’re over Age Pension age, therefore these assets values are still going to be assessable whether you retain the investment properties, or sell them and contribute the proceeds into super.
Only have $50,000 in super when retired and have no debts. Own our own home.
Will get the state pension.
Just wondered if other people have a similar circumstance as worried we haven’t got enough super.
Also what’s the best way to invest this $50,000 in our super to make money?
Hi Jayne. Thanks for your question, whether or not your super is ‘enough’ is a really common question that we help people work through. The answer will depend on a number of different factors, as everyone’s story is a little different. It may depend on how much income you need to meet your needs, whether you have any other assets to rely upon, and a number of other factors. So I can’t really give you a yes or no here, I’d be happy to talk through your situation in more detail in a Strategy Consultation. This would allow us to look at your circumstances more closely, and discuss your options for the future. You can book an appointment by clicking here. Best of luck, Nicole
We both have a significant amount in our super funds and need to take out a decent amount each per year in the pension mode
I have only minimal income outside.
My wife receives income from rental but has deductions
Are we eligible for seniors health care card?
Hi Sam, thanks for your question. There is a lot of confusion around what ‘income’ means for the Commonwealth Senior’s Health Care Care. The best estimate of eligibility is to use our Age Pension Eligibility Calculator. It will apply the current rates to your situation and provide an indication of whether you are likely to be eligible. If you haven’t had a chance to have a look yet you can access it here. If you are not eligible for any age pension it will indicate potential health care card entitlement.
As a summary the funds you have in income streams (the super funds you referenced) are not based on what you are actually drawing, but ‘deeming’ is applied to the balance. You can find more information about deeming here. In addition to this, any assessable income that appears on your most recent tax returns is added on top of the deemed income, and if the total equates to less than $144,000p.a then you may be eligible for a card. We can’t say definitely unless we look at the detail, but hopefully this gives you somewhere to start. If this all seems a little confusing but you don’t want to bother apply without a little more confidence about potential eligibility, you can consider booking an entitlements consultation to discuss one-one one. You can book by clicking here. Best of luck, Nicole.
My partner and I both have approximately $500,000 in super
I am 65 He is 64
I also have a home with a mortgage of $230000
We live together
I plan to retire in 18 months when I turn 67
Will I/we be eligible for a part pension?
Hi Karen, thank you for reaching out. If your combined super balances are $500,000 then it is possible you might be eligible for a part-pension benefit however, it would depend on your entire circumstances. I would suggest initially having a go at completing the Age Pension Eligibility Checker to look at possible Age Pension benefits, based on your situation. You can reach this by clicking here. Also, I would be happy to meet with you in our Strategy Consultation to discuss some options which may be available to maximise Age Pension benefits for situations like yours. You can book one of these by clicking here. I look forward to meeting you. Thanks, Megan.
Hi, im 64 wife 59 i have 890k super, wife 950k, own home, shares 300k, rental prop around 500k net equity value Would we be able to strategise to get the aged pension?
Hi PB, thanks for your question. You have done well to accumulate a healthy nest egg for your retirement. Over time the Centrelink Assets Test and Income Test thresholds increase, and as you spend some of your investments over the years to fund your retirement expenses, your asset values may fall within these thresholds as they move. Once this occurs, you can qualify for the Age Pension. The current Assets Test threshold for a homeowner couple is $986,500. When you reach Age Pension age, your wife will still be under Age Pension age. There may be a 5 year window of time available to you if you consider that your wife’s super is an exempt asset until she reaches Age Pension age, provided it remains in accumulation phase. Any assets contributed to her super would reduce the value of your assessable assets to qualify. You need to observe superannuation caps when contributions are being made into super, so this may need to be completed over a number of years. We are able to assist you better understand superannuation in a tailored conversation here