Robert's Retirement Blog

Centrelink, specifically the age pension rules for those over age 67 can be quite confusing, that is why it is important to get professional advice around your individual situation. There are a lot of rules. For example, the pension is means tested where your level of assets and income determine how much age pension you get paid.

For this blog, if I will just focus on the income test. There are many different types of assessable income (see here for the full list). In the interest of simplicity I am just going to focus on employment income only in this blog and not consider any other sources of income.

Currently, as a single person you can earn up to $212 per fortnight and get the full age pension, it starts to reduce by 50 cents for every dollar over this threshold and cuts off completely at $2,500.80 per fortnight. For a couple (combined) you can earn up to $372 per fortnight and get the full age pension, it starts to reduce by 25 cents (each) for every dollar over this threshold and cuts off completely at $3,822.40 per fortnight.

It may seem that you can’t earn a lot, but this doesn’t take into account something called the “Work Bonus”. It is an extra “free” allowance of work income you can earn before your age pension starts …

The transfer balance cap relates to the amount of money you can have in retirement in an account-based pension. This cap was first legislated on the 1st of July 2017 and started off at $1,600,000.

If we go back to the benefits of an account-based pension, they are really simple from a tax perspective meaning everything that is earnt within the pension fund from a capital or income perspective is tax free. The government thought that it was a bit too lenient allowing people with more than $1.6 million in pension phase to benefit from a 0% tax environment, which is why they brought this legislation in place. My thoughts are they brought this in place as they believe (whether right or wrong) that $1.6 million should be enough for someone’s retirement and the superannuation/pension environment is there to fund someone’s retirement only which is why there are tax concessions (not as a wealth transfer vehicle or to build more wealth you can ever spend in retirement).

Fast forward to the 2024/2025 financial year and the current transfer balance cap is $1.9 million. Then recently following the release of the December 2024 CPI (Consumer Price Index), it is expected to now increase to $2 million from 1st of July 2025. This will later be …

Keeping an investment property in retirement has a number of considerations ranging from taxation issues to Centrelink issues. They can be a great source of income and growth but again, it is all dependent on the individual asset you own and like anything whether that be shares, managed funds or cash – they all have different risk and return characteristics.

One thing to consider with property is liquidity in retirement. Note – the following example is really simplified but let’s say you have an $800,000 property that is paying you $600 per week in net rent (about $31,200 p.a.) and that meets your living expenses fine. Then what happens if you need to replace the ducted air conditioner in the property costing $10,000 or you might need a new car yourself of let’s say $30,000?

Unless you have liquid cash assets outside of your property then you can’t sell a portion of the investment property overnight to fund your purchases (whereas if you have other more liquid assets like some managed funds / cash – then you can sell a portion of these assets overnight).

It really depends on your situation if property is right for you and what you want to gain out of it in retirement. Let’s say your goal is capital growth and you plan to keep it …

Whilst in accumulation phase, superannuation funds can account for tax differently and there is not a one size fits all. What tax do funds pay? Well, they pay usually 10% on capital gains (if held longer than 12 months) and 15% on other income and concessional contributions (within limits). They are also entitled to tax deductions – for example certain fees and insurance premiums.

A few examples of the different tax structures can be found in an SMSF or a “Wrap” super fund where it is “individualised”, or in an industry fund it is generally “pooled” and there are also other funds like SuperSA Triple S here in South Australia where it is “untaxed”.

An “individualised” structure means your fund does a tax return each financial year, and you pay the exact tax you are supposed to pay based on what has gone in and out of your account.

A “pooled” structure means you aren’t necessarily paying the tax based on your current situation, industry funds generally use this method and can “pool” gains and expenses and split them between members, in some cases this can work better for you and other cases it might not work better for you.

A “untaxed” structure means that the fund isn’t paying ANY tax along the way – therefore when you leave/exit …

The goal posts with superannuation like everything in life do change.

It is interesting to look back at what they have been in the past which in some instances seem quite generous (see the ATO link here). For example, in the financial year 2007/2008, if you were over 50 years old, you could contribution $100,000 concessionally into superannuation. This is quite a lot for an annual amount, they later reduced this amount. In the last 10 financial years the maximum has been $35,000 p.a. and the lowest has been $25,000 p.a.

Currently at the time of writing the annual limit is $30,000 p.a.

However, depending on your situation – you may be able to contribute more than this concessionally into superannuation. One way is using the “unused concessional cap carry-forward” rule. This was brought in from the 1st of July 2018. The first year you can use unused amounts is the 2019-2020 financial year. This will allow you to “look back” and contribute amounts you previously haven’t concessionally up to previous years’ limits. There are a few contingency’s around this like your total superannuation balance as at 30 June of the previous financial year needs to be under $500,000 and a maximum “look back” period of 5 years.

Keeping in mind, the …

When an individual meets a condition of release, they may be able to move their superannuation accumulation account into what is called an account-based pension.

An account-based pension allows the individual to invest their retirement savings and benefit from drawing from it without any tax consequences and not paying any tax on anything their fund earns. This is one of the big benefits of the Australian superannuation system which is to eventually have the ability to set an account-based pension up in retirement.

Now the government does place a few restrictions around these if you want the benefit of 0% tax, this is because they want to make sure the main purpose of these pension accounts are to provide for one’s retirement (not build wealth in a tax free manner to maximise your eventual estate value for example and never spend it).

One of the restrictions is there are minimum drawdowns. Essentially all this means is you need to take a minimum amount out of your account balance each year. For example if you are 65-74 at 1 July of the financial year, you need to take 5% of your account balance each year. This goes all the way up to if you are 95+ you need to take out 14% each year.

Another restriction is the amount of funds you …

When I first started in the industry over 8 years ago – there was no such thing as a retirement bonus (except for 1 super fund). There was and technically still is two main forms of superannuation funds with two different ways of calculating tax.

For example:

• Industry Funds: Tax is paid up to 15% on earnings within the accumulation phase. Then when you come to retirement and want to setup an account-based pension. Your balance is your balance and from there on – any further fund earnings are tax free in the pension environment.
• Wrap Funds or Self-Managed Super Funds: These funds pay tax on any capital gains and income up to 15% in accumulation phase. Then when you get to retirement – you are able in most cases to transfer the balance into an account-based pension and NOT pay any tax on any unrealised capital gains within the fund.

Now industry funds have been at a disadvantage to these wrap funds for years due to them not having this flexibility due to their “pooled” investment structure and you may not be getting your actual tax benefits relevant to YOU as the tax is built into the unit price.

A lot of scrambling by these industry funds has now started as they are trying to give members a “bonus” of missed tax concessions they …

When going into retirement, secure housing is a big consideration and having your own home that is paid off and owned outright is the goal for many, although it can be hard to achieve.

The Centrelink Age Pension system I believe benefits homeowners (who own their home outright) more than it benefits non-homeowners (note that these are just my personal views). If you don’t have your home paid off and have a mortgage – this can also be challenging as there is no extra payments for pensioners with a mortgage (so in some instances you may be better off financially renting as you might be able to claim some rent assistance).

In this blog, I will explain some differences between the two.

These are firstly what I see as disadvantages of being a non-homeowner from a Centrelink perspective:

• Both homeowners and non-homeowners have the same income test for Centrelink. Now potentially a non-homeowner might need to work more to afford rent etc but is penalised the same for doing so as a homeowner.
• You get paid the same age pension whether you own a home or not.

Some advantages of being a non-homeowner:

• There are higher allowable asset limits you can have before your pension starts to reduce and higher limits before it cuts out. For singles …

(LSL) Long service leave. When retiring don’t take it as a lump sum! In some cases…..

It is important every individual seeks advice relevant to their situation and don’t just follow “what your friend did with their long service leave pay out”.

For example, there are many benefits of taking long service leave over a period of time, i.e. super contributions may still get paid, and you might be able to spread your income and therefore tax over multiple financial years.

But there are also other considerations to take in. For example, if you take long service leave as a lump sum - this may mean you are entitled to the Age Pension quicker (if you are age pension age). So, it is always good to weigh up the potential extra age pension you will get from taking it as a lump sum and what the missed benefits may be from not taking it over a period of time.

In some scenarios you might be selling an investment property next financial year and realise significant capital gains - so again taking it as a lump sum this year may help reduce your tax next year. Every individual is different regarding what they want to achieve and there are usually different ways to get there.

If you are partnered, this can also add some …

As I advise a lot of pre and post retirees, I see the importance of having your details up to date. This can be with everything through to MyGov, the ATO, Centrelink and your super fund. I come across clients from time to time where for example they may have a spelling error in their name with their super fund, a maiden name might still be showing or their preferred name is what is reflected on the superannuation account which in turn just causes delays.

When monies are moving between superannuation accounts, or when you are setting up income streams and/or withdrawing money from superannuation. Everything must match, there is quite a lot of security measures in place now and most superannuation funds will ask for certified ID documents – or run a digital ID check, then if something doesn’t match, you can’t get access to your funds until it does match.

In addition to having up-to-date details, it is always good to know where important documentation like passports and birth certificates are, this is because when you deal with government departments like Centrelink and apply for pensions, they may still ask for these documents with your initial application.

So next time you get your superannuation statement, or if you can login …