Your car and your retirement:
Five things it helps to know
At Retirement Essentials we consider ourselves lucky to have a ‘secret sauce’ when it comes to the detail of maximising your retirement. Pardon the pun, but you could in fact call our secret sauce, a great source of information and tips. And this is our very own Steve Sadler, who heads up the Customer Services Team.
Something Steve knows in deep detail is the rules around your car and your retirement income – particularly those relating to Centrelink.
So today he shares his top five insights to help you understand what you may need to do today – or in the future, to ensure your car doesn’t prevent you from maximising your hard-earned savings.
How does Centrelink use my car’s value to determine my income?
The Age Pension entitlement is based upon two different thresholds – income and assets. But some of your assets are also ‘deemed’ to earn income and so they may be viewed in two ways at once by Centrelink.
Your car is an asset. Unlike your primary residence, it is not exempt from the assets test. It is, however, not deemed, so there is no income attributed to this asset.
What does this mean in plain English? It means that if you are close to the assets threshold, the value of your vehicle/s could mean you are eligible or not. Ensuring that the stated value of any and all vehicles is 100% up to date and accurate is therefore the first rule of retirement and cars.
What is current market value?
The value of your vehicle means different things to different people. There is the purchase price. Then the depreciated value according to its age and condition. There is the replacement value according to an insurer, which may or may not be the amount for which you choose to insure it. Confused? Don’t be. For Age Pension entitlement purposes, the current market value is the critical valuation. This can be ascertained by checking your make and model (and condition) on www.cars.com.au or by using the Redbook site. Centrelink will not send someone to check your car, but it is important you report an accurate value. This can be done, if you are already eligible, by going to Centrelink via your MyGov account. It is important for you to update this value as the vehicle depreciates – Centrelink will adjust your super balances automatically, but this is not the case with your car. Sometimes a re-evaluation can make the difference between eligibility and not – as was the case with Tom and his much-loved Corolla.
What do I need to do if I purchase a new car?
Again, if you already receive a full or part Age Pension, you need to inform Centrelink. This is where the money trail matters a lot. You will need to supply the invoice or receipt for your vehicle (even if second-hand) and show where the money came from. You need to update this information within 14 days of taking ownership of the new vehicle. It’s a little frustrating that Centrelink will value a brand new car at showroom prices (i.e. as shown on your invoice), when it will lose value dramatically after leaving the showroom floor. You may wish to ascertain the depreciated value a few months after taking possession, and then readjust the amount on your asset list using MyGov links to Centrelink. Those not yet on a pension will still benefit from keeping an accurate money trail as these records are helpful if and when you do need to apply.
And what of your old car?
Again, Centrelink has a strong interest in how you dispose of your previous vehicle. If you sell it, you need to show what you have done with the proceeds (i.e. increase to savings account or other investments). If it was a trade-in this will be clearly detailed on the invoice. If you choose to keep it, the new car will be an extra asset – the older one will stay on the register as well. If you give it away, then you are ‘gifting’ and need to obey all gifting rules. Gifting is allowed, up to $30,000 over a period of five years. It’s best to know how this works, however, so you don’t inadvertently threaten your entitlements in the meanwhile.
And what’s a vehicle? Is this information just for cars?
As it sounds, a vehicle, when it comes to Social Services’ eligibility, can be a car, a caravan, boat or motor bike – even a homemade box trailer. They are all assets of some value according to Centrelink.
And don’t forget, if you are on the Age Pension, you will have a Pension Concession Card which means you will most likely get a discount on vehicle registration. This is a significant amount of money, so make sure you receive this concession if you are entitled to it.
At first glance, it is reasonable to assume that self-funded retirees do not need to worry about the Services Australia rulings regarding vehicles. But given that 80% of Australians will be receiving an Age Pension by the time they reach their 80s, keeping accurate records of all vehicle transactions will make your application all the easier if and when it’s needed.
Knowing the rules on entitlements is key to making sure you maximise your income. It’s not just the rules on vehicles that can cause concern. So if you are unsure about your current or future possible entitlements, why not visit the Retirement Essentials Age Pension Eligibility Calculator and set your mind at rest?
I have just read your article on Your Car and Your Retirement and am a little confused about the comment by Steve Sadler regarding vehicle registration. He states that if you have a pension card you don’t have to pay for registration. In Sth Aus we get a discount is this a state by state decision or an error in the article .
I find your emails extremely helpful and informative
Kind Regards
Craig
Hi Craig, thanks for keeping us honest! We’ll double check this information, Centrelink have confirmed that the benefits of the Pensioner Concession Card are national. I apologise in advance if this is incorrect but thank you for bringing it to our attention.
Cars.com and red book all rate my car at $18000 – $20000. That’s the selling price. However, this is not the price that I will be paid by these companies if I decide to sell. Am I wrong or not understanding?
Hi Linda, thanks for reaching out! You aren’t wrong, there are many factors that impact the private sale value of your vehicle. Cars.com.au and Red Book are good to use as a guide if you genuinely don’t know your car’s worth however your car could have scratches in the paintwork, stains in the interior etc. which would reduce your specific car’s value lower then those guides suggest.
Linda, not that I’ve checked the guides lately but I have always sold my cars ‘Privately’ where you normally pitch your price under the Retail (car yard price) and well above what the “Trade Price” which is what you would get by just going to the dealers; which will be around say 60% of the Sale Price , less even if the car is common and is only going to take up yard space or maybe more if it is desirable. These days though the market is out of kilter due to the pandemic and certain vehicles 3 maybe 5+ years old are selling for new car prices.
Very helpful information. Could you please clarify the statement
‘And don’t forget, if you are on the Age Pension, you will have a Pension Concession Card which means you do not have to pay registration’.
Queensland Transport appears to offer concessions rather than discounting registration completely.
Hi Terry, thanks for keeping us honest! We’ll double check this information, Centrelink have confirmed that the benefits of the Pensioner Concession Card are national. I apologise in advance if this is incorrect but thank you for bringing it to our attention.
How do I enquire about free registration?
Hi Phyllis, thanks for getting involved in the conversation! You need to let your state’s government department in charge of vehicle registrations know that you have the Pensioner Concession Card. For eg in NSW it is Service NSW (formerly RTA) whereas in Victoria it is VicRoads.
And don’t forget, if you are on the Age Pension, you will have a Pension Concession Card which means you do not have to pay registration. This is a significant amount of money, so make sure you receive this concession if you are entitled to it.
On full pension with card only get ” reduced” rego..QLD
Hi Anthony, thanks for keeping us honest! We’ll double check this information, Centrelink have confirmed that the benefits of the Pensioner Concession Card are national. I apologise in advance if this is incorrect but thank you for bringing it to our attention.
In WA I received a slight discount on my car registration. I’m on full pension and have a pension concession seniors card. Still left with considerable balance to pay. Please explain.
Hi Ian, thanks for bringing this to our attention! We have amended the article to correctly reflect that it is a “discount” that is received but the amount of the discount does vary between different states.
If I purchase a vehicle using the mortgage of my home, is the asset value the purchase price or the purchase price less the amount I borrowed from my mortgage?
Hi Milton, good question! Whether it be a new car or any other asset, the only time you can use a debt to offset the value of the asset is if the debt is secured against the asset bought. So in your scenario the full value of the new care would be counted as an asset because the mortgage used to buy it is secured against your house, not the car. As the house you live in is exempt from the assets test having a higher mortgage owing against it makes no impact on how you are assessed.
I was of the understanding that these asset like home and contents are valued at firesale prives
when will we achieve universal pension ?
i have family in New Zealand they reach pension age they get the pension, if they want to work 1 day or 5 days they pay tax on their total income, not tax plus 50% of some or all their pension.
result :- less skill shortage, more bureaucrats released to pursue the multi nationals dodging millions in tax.
Well said Colin
That would be a great win win for the whole nation
But what chance do you give on this happening
Hi, I understand about car going into your assets but what if between the 2 of us we have 3 cars does it still work the same in Australia that it goes as a asset?
Hi Chris, thank you for replying to our article! It doesn’t matter how many cars you have or whether they are registered in you or your partner’s name. They all count as assets based on their private sale value.
Thanks for the article. How are (private not company) leased cars assessed, as an asset valued at market price or as a liability since money is still owed on it for the term of the lease?
Hi Phil, thank you for your comment! Centrelink assess privately owned vehicles based on their market value minus the balance of any debts secured against the vehicle. For example a car worth $30,000 that has a loan secured against it of $20,000 would be assessed as a $10,000 asset.
This is very helpful thank you. We are faced with some changes in circumstances, with the prospect of having to apply for a part pension in a few years.
We bought a “it will see us out Lexus”, expecting to keep it for the next 10-15 years, health permitting.
We borrowed 100% of the value, with the car securing the loan. Since we bought the vehicle interest rates have significantly risen.
We expect that for the first 5 years the market value will be significantly less that the current payout figure. Eg the payout is $50,000, while the market value is $40,000, ie there is $10,000 negative equity. Will -10,000 be added to the value of our assets?
Another issue, is the amount owing on the vehicle equal to the payout figure supplied by the finance company. Or is it an actuarial calculation, with a formula applied?
Hi Chris, thanks for the feedback, we don’t always know if readers find the content valuable or not without comments like yours! Regarding your car value, as the loan is secured against the car the value of the loan does offset the value of the car but only the car. Centrelink will not allow you to use the excess car debt to offset the value of any other asset, only that which it is secured against. For example credit card debt or mortgages cannot be used to offset the value of your bank account/super balance.
How does a care lease in you own name count as an asset as it is not owned unless it is paid out
Hi Mervyn, I presume you meant car lease not care lease? If so then the answer is it depends on the terms. Centrelink consider something an asset if you have the right to sell it. If you could sell the car and use the proceeds to pay out any monies owed then yes it is an asset. If you could not sell it because the company you are leasing it from still maintains that level of control, then no it is not an asset. In most car leases you would not be considered the “owner”, the leasing company is and so you could not sell the car and nor would it count as an asset.
HI Chris, my partner and I have just separated and we need to sell our vehicle which we have had to sell to the car yard and yes I know we won’t get the price if we sold it privately.
I may only receive 10,000.00 from this sale will this effect my pension- I will need another car.
Hi Joan, thanks for reaching out! The money received from selling the car will not likely have any impact because you are effectively converting one asset (the car) into another (cash) but the value would presumably be the same either way. Centrelink may have the car valued at a higher figure so the lower amount you receive could even mean a small increase in pension. Once you buy the new car then you need to advise Centrelink so they can update your records again to show the transfer of cash in exchange for the car.