Income boosts from home equity

The family home remains the single greatest source of wealth for most retirees – that fortunate 80% who live in their own dwelling. Superannuation is a more easily accessible form of wealth, but the money locked up in our homes can be higher. And more and more retirees are considering ways of accessing this wealth to ensure that they don’t have to scrimp and save throughout their retirements.

The Government stands to benefit from homeowners who use their equity to top up their retirement income, so legislation on downsizing continues to evolve, with more and more ways to encourage homeowners to access these funds.


This remains a big decision, as it is never just about the money. It’s also about your community, your attachment to your current home, your physical needs and a whole lot of other ties which are important ingredients for a happy retirement. Having an easily manageable house is also high on most priority lists.

Two ways to skin the cat

There are many ways to release your home equity, but the two most commonly used strategies are to either:

  • release funds through a reverse mortgage (including the Government’s Home Equity Access Scheme)


  • to downsize by selling and topping up your retirement savings with the surplus available after repurchasing a more modest home,

This latter strategy is very useful but also very complex. But it is well worth your while to learn more about the detail as it is a potentially lucrative strategy to keep your existing entitlements whilst adding to your savings.

Here’s how it works, as shared by Retirement Essentials adviser, Sharon.

How to manage surplus funds

When you need to move into something more manageable and find you have surplus funds from your home sale proceeds, what can you do if it reduces your Age Pension payment?

There are sometimes ways to structure your plans to your benefit; to grow your superannuation and to keep your Age Pension. When you have two members of a couple with different ages, it can be wise to consider taking advantage of Centrelink’s Asset Test treatment of superannuation, where superannuation is an exempt asset for someone under Age Pension age.

Let’s consider the case of Bernie and Helen.

They sold their family home, then purchased a more manageable residence, and now have $650,000 surplus cash after all fees.

What to do?

As you may know, Downsizer Contributions are available, up to $300,000 for each member of a couple.

Bernie is 70 (above Age Pension age). Helen is 61 which is under Age Pension age, but she’s already permanently retired.

Options for $650,000 surplus cash Outcome

  • Split Downsizer Contribution 50/50.
  • Each contributes $300,000 into super
  • Total $600,000 invested into super.
  • $50,000 cash remaining
  • Bernie’s super balance is assessed as an asset and deemed.
  • Helen’s super balance is exempt and not assessed by Centrelink.
  • $50,000 cash would also be deemed if not spent.

  • Helen makes $300,000 Downsizer Contribution into her superannuation.
  • Helen also makes $330,000 Non-Concessional Contribution using Bring-Forward rule (as this has not been triggered already in previous years).
  • Bernie makes no super contributions.
  • Total $630,000 invested into super.
  • $20,000 cash remaining
  • Helen’s super balance is exempt and not assessed by Centrelink.
  • No change to Bernie’s assessment.
  • $20,000 cash would also be deemed if not spent.

What difference does it make?

Is one option better than the other?

Option A

Deeming is calculated as earnings on investments, whether they actually earn that amount or not. Bernie is over Age Pension age, and his super is assessable. If he contributes $300,000 as a Downsizer Contribution into his super account, that $300,000 will be assessed as an asset, and ‘deemed’ to earn investment income. This amount is then assessed under the Income Test, in addition to his existing superannuation balance.

Deeming implications

For someone who already has more than $93,600 in super, this additional $300,000 is currently calculated to earn a rate of 2.25% equating to $6,750 per annum (or $259.62 per fortnight) investment income, and assessed as income under the Income Test.

Consequently this affects the Age Pension entitlement and reduces Bernie’s Age Pension payment, (reducing at a rate of 50c in the dollar once the threshold is exceeded). Therefore, his Age Pension payment would reduce by $129.81 per fortnight (i.e. 50% of $259.62).

Option B

Contributing $630,000 of the $650,000 surplus cash into Helen’s superannuation balance would save this reduction of Bernie’s Age Pension, with all household income remaining at the same level to provide for household expenses. If any ad-hoc additional funds were needed these would be accessible, as Helen is permanently retired and able to make tax-free lump sum withdrawals from her superannuation.

(Cautionary note: The lump sum withdrawals from super may affect your Income Test if super withdrawals appear as regular lump sum withdrawals resembling an income stream.)

This results in a $129.81 per fortnight or $3,375.06 per year improvement in household income, by not having additional superannuation assessed in Bernie’s name, and avoiding this reduction in Age Pension payments, by retaining previous levels of Age Pension payments.

Option B is clearly a better strategy for income purposes. Achieving such an outcome is possible by planning ahead, structuring your financial assets judiciously and taking advantage of Centrelink’s Assets Test treatment of superannuation.

Selling your principal home and downsizing can result in your Age Pension payment reducing when your super balance increases. But it is possible to increase your super without affecting your Age Pension payments, as demonstrated above.

If you require support to understand the consequences of what this means in your particular situation, booking a tailored advice consultation may be beneficial.

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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.