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In January 2017 changes to the Centrelink Aged Pension Asset Test caused more than 430,000 Australians to lose or suffer a reduction in the Aged Pension.
As we discussed in our article Simple Strategies That Could Increase Your Income checking that your details are correct with Centrelink is the first step to ensure you are receiving the maximum pension available to you.
The good news is that there is potentially more you can do with some careful planning and implementation, which can help boost your Aged Pension and avoid the traps.
One simple method to increase your Centrelink Age Pension is through ‘Gifting’.
‘A Gift is any Money or Asset which is passed onto someone else where you do not receive adequate compensation.’
A GIFT THEREFORE CAN BE EITHER MONEY OR THE TRANSFER OF AN ASSET.
Some simple examples of Gifting may include:
- buying your child/grandchild a car or giving them yours
- assisting with a deposit on a friend or family member’s house
- transferring some shares as an early inheritance gift
- selling a house to a relative for less than the current market value.
Centrelink has rules to manage Gifting which permits you to give away certain amounts over set periods of time. These being:
- A Gift of up to $10,000 can be made in any one year, and
- The maximum total of $30,000 can be Gifted over a rolling 5 year period.
SO HOW CAN GIFTING IMPROVE YOUR CENTRELINK AGED PENSION
As mentioned in our article about Taper Rates {Link to previous article}, for every $1,000 of Assessable Assets you hold, Centrelink will reduce your Aged Pension by $3 per fortnight.
The reverse therefore is also true. If you reduce the amount of assets you own, which may include an appropriate Gifting strategy, then you can Increase the amount of Aged Pension paid to you per fortnight.
For example for every $10,000 you gift, Centrelink could increase your Aged Pension by as much as $780 per year. See how this works below for a single homeowner with $250,000 of assessable assets who gifts $10,000 from a bank account paying 3% interest.
| No Gifting
| Gifting in Year 1
| Increase from Gifting
|
Total Assets
| $350,000
| $350,000
|
|
Gifted Assets
| 0
| -$10,000
|
|
Assessable Assets
| $350,000
| $340,000
|
|
Less Asset Test Free Area
| $250,000
| $250,000
|
|
Taper Assets
| $100,000
| $90,000
|
|
Taper Income Reduction p.f.
| $300
| $270
|
|
Net Pension p.f.
| $588.30
| $618.30
|
|
Net Pension p.a.
| $15,295.58
| $16,075.80
| +$780.22 p.a.
|
Bank Interest @3% p.a.
| $300.00
| $0.00
|
|
Total Net Income
| $15,595.58
| $16,075.80
| +$400.22 p.a.
|
Note: p.f. = per fortnight / p.a. = per annum
The example illustrates that a gift of $10,000 in year 1 could result in an increase of the Aged Pension by about $780 per year. The trade-off being that you will no longer have access to the $10,000, plus if this was invested and earned 3% per annum, it could’ve earned an additional income of around $300 per year. The net benefit as a result of the $10,000 Gift would therefore reduce to about $400 per year.
In simple terms you can Gift however you choose as long as you stay within the limits.
If you go over these limits, Centrelink will deem the excess to be a deprived asset and they will continue to be used to calculate the asset test and income test.
SOME EXAMPLES OF DIFFERENT WAYS OF GIFTING MAY INCLUDE:
- All up front: You can Gift $10,000 in year 1, $10,000 in Year 2 and $10,000 in Year 3 at which time you will reach your $30,000 limit and will have to stop Gifting for 2 years.
- Average Gifting: You can Gift the $30,000 over the five years by gifting $6000 per year. So long as you stay under the $6000 average each year, and can afford it, you can continue to Gift in this way
- Mix and match: Gifting amounts each year below the $10,000 p.a. and ensuring that the total over a five year period doesn’t exceed $30,000. For example Year 1 - $8,000 Year 2 - $4,000, Year 3 $9,000 Year 4 $0, Year 5 - $9,000. The total being $30,000 over the five year period and each year being below the $10,000 limit.
Of course whether Gifting is appropriate for you and how this could be implemented will be specific to your financial goals, the assets you own and your cashflow.
Another thing to be mindful of is that you cannot maintain control over the Gifted Asset otherwise it would be considered a loan, in which case it would remain as an assessable asset to you.
In my view, the real aim of Centrelink’s Gifting rules is to allow retirees the opportunity to help someone out. Gifting $10,000 simply to get an increased age pension, to me, just doesn’t make much sense.
However, if the combination of being able to help someone close to you like a son, daughter, family member or friend, and the benefit of an increase to your Centrelink Aged Pension sounds like a positive outcome for you, then it’s a strategy worth considering.
Caution! The Gifting rules and limits can be tricky and falling foul of them could be quite costly, and something you may have to live with for up to five years.
Therefore if you would like some more information regarding Gifting and your Centrelink Assessable Assets contact us today.
Our Retirement Specialists can provide more detail on the Centrelink Aged Pension changes and discuss any strategies with you which may improve your Aged Pension Benefit. Just click here to leave your details and a Retirement Specialist will contact you.