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.
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.
‘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.