Would the rate of Centrelink or Department of Veterans’ Affairs age pension increase if the amount being paid from an account-based pension reduced?
The answer is very much a case of “it depends”. There are several factors that need to be considered:
1. If the full rate of age pension is being paid (i.e. currently $1,423.60 per fortnight, including supplements – for a couple, or $944 per fortnight, including supplements – for a single person), reducing the level of pension payments from an account-based pension will not result in a change to the rate of age pension being paid.
2. If a part age pension is being paid and the age pension is assessed under the assets test, a reduction in the level of income being drawn is unlikely to result in an increase in the rate of age pension.
However, if the account balance of the super pension has reduced as a result of a downturn in investment markets, it is worth informing Centrelink of the new balance as this may result in an increase in the rate of age pension (as a result of the level of assets that exceed the assets test threshold having reduced).
As a guide, the age pension for a couple (combined) reduces by $3.00 per fortnight for each $1,000 of assets that exceed the asset test threshold. The asset test threshold for a couple that own their own home is currently $394,500. Conversely, if the level of excess assets reduces, the age pension for a couple will increase by $3.00 per fortnight for each $1,000 reduction in the excess assets.
It is a fine balancing act and some caution needs to be exercised. A reduction in the level of assets may result in the age pension now being assessed under the income test, rather than the assets test. If this occurs, the following comments will be applicable.
3. For account-based pensions being assessed under the income test, the date the pension commenced to be paid is an important factor.
If the account-based commenced after 31 December 2014, and/or if the age pension commenced to be paid after that date, reducing the amount being paid from the account-based pension will not have any impact on the rate of age pension being paid.
4. However, if the account-based pension, and the age pension have both been continuously paid since before 1 January 2015, reducing the income drawdowns from the account-based pension may result in an increase to the rate of age pension paid by Centrelink.
In these cases, the amount of income counted under the income test is the actual income payable for the financial year, less an amount referred to as the deductible amount.
The deductible amount is calculated when the pension first commences and is based on the opening balance of the account-based pension, divided by the relevant number. The relevant number is the life expectancy of the pensioner, or reversionary pensioner (if nominated – in which case the longer of the two life expectancies is used). Once the deductible amount is established, it remains constant for the life of the account-based pension unless lump sums withdrawals are made, in which case the deductible amount is recalculated.
For example, if a 65-year old male commenced an account-based pension (with no reversionary pensioner being nomination) on 1 December 2014, and the opening account balance was $450,000, the annual deductible amount will be $24,272. ($450,000 ÷ 18.54). This amount will be deducted from the actual income being received from the super pension to determine the amount of income assessable under the income test. Therefore, if the level of income being received from the super pension is greater than the deductible amount, reducing the actual income being drawn will result in an increase in the rate of age pension.
Taking this example one step further, if the income being drawn from the account-based pension was (say) $40,000 per annum, only $15,728 ($40,000 – $24,272) would be counted under the income test.
If the super fund were requested to reduce the annual income payments from $40,000 to (say) $30,000, the amount assessed under the income test would reduce from $15,728 to $5,728. This would result in an increase in the amount of age pension being paid.
Having said that, if the level of income being drawn from an account-based pension is less than the deductible amount, a reduction in the level of income being received would not result in an increase in the rate of age pension being paid as the income received from their account-based pension is not affecting the level of age pension being paid. Likewise, there would be little value in reducing the income from the account-based pension to an amount less than the deductible amount, other than perhaps, to preserve money in the superannuation environment.
Therefore, where a person is receiving less than the full rate of age pension, and their super pension is an account-based pension, a reduction in the amount of income being drawn may result in an increase in the age pension entitlement provided the account-based pension commenced to be paid before 1 January 2015.
If this situation applies, and the super fund is being requested to reduce the level of income payments, it is important to ask the super fund to issue an amended “Details of income stream product form (SA 330)” and for this to be given to Centrelink to enable the reassessment of the age pension to be made.
In summary, and increase in the rate of age pension being paid by Centrelink may increase where:
1. A part age pension is being paid and is being assessed under the assets, and there has been a reduction in the account balance of the account-based pension, or:
2. A part-age pension is being paid under the income test and an account-based pension commenced to be paid before 1 January 2015, and the level of income being drawn from the account-based pension is reduced.
If you have questions about your superannuation or Centrelink and Veterans Affairs’ pensions, speak with a qualified financial planner.
Source: Peter Kelly | Centrepoint Alliance
Aged Care – it’s complicated, and emotional
/in Financial Advice General Info /by Shellie FisherThis story highlights the complexities of aged care and the financial and emotional stress that can arise for not just one person, but in this case, two.
Here is a brief outline of the circumstances.
What happens next?
Anne enters residential aged care as a low means resident, meaning she does not have to pay a Refundable Accommodation Deposit (RAD). Her only cost is the basic daily fee of $52.25 per day or $731.50 per fortnight. Anne is in receipt of the full age pension $944.30 per fortnight, so there does not appear to an issue.
At the time of her entering aged care, Anne’s home is exempt because Jayne is still residing in the home, has done so for many years, and is receiving an income support payment – the Carer Payment. Under the legislation Jayne is classified as a “protected person”.
After a period of 14 weeks the Carer Payment ceases as Jayne is no longer caring for her mum and is therefore no longer entitled this payment. Jayne then decides she is going to return to nursing and commences work at her local hospital, continuing to reside in her mum’s house.
Unfortunately for everyone, life is about to become a little more stressful.
As Jayne is no longer in receipt of an income support payment, mum’s home becomes an asset for the purpose of calculating the aged care fees.
Anne’s status as a low means resident remains and she does not need to pay a RAD, however she now is required to pay a Daily Accommodation Charge (DAC) of $58.19 per day or $814.66 per fortnight on top of the basic fee. Mum’s total fees now are the Basic Daily Fee of $52.25 per day plus the DAC of $58.19 or $1,546.16 per fortnight. Mum’s only source of income is the full age pension $944.30 per fortnight, therefore she is just over $600 a fortnight short of being able to pay her fees.
Jayne, who is now working, decides she will pay the difference from her salary, which solves the problem in the short term.
However, two years after mum entered residential aged care, she loses her pension because of her assets, her one-million-dollar home has become an asset for the purpose of calculating her age pension entitlement.
Mum’s cash in the bank has reduced to just over $20,000 and even though Jayne is still working, her salary will not cover her own living expenses and Anne’s total aged care fees. Anne’s fees are no longer around $600 a fortnight short in paying her fees, she is now short $1,546.16 per fortnight.
The options available are not many.
They could sell the home, which is incredibly stressful for Jayne. Even though she has an enduring power of attorney and could sell her mum’s home, she is reluctant. It’s not the financial perspective, but the emotional and sentimental impact of selling the family home. After all, this is her mum’s home and she has also lived in the home for over 20 years.
Jayne considers borrowing against the value of the home and paying a Refundable Accommodation Charge (RAC) of $433,500 to the aged care facility to ensure mum no longer has to pay the DAC. The money borrowed and secured against the value of the home will reduce the value of Anne’s assets to below the threshold and she could then be entitled to an age pension of $591 per fortnight.
Mum’s aged care fees will change to the Basic Daily Fee of $52.25 per day, with a Means Tested Care Fee of $18.27 per day, making the total fee payable $987.28 per fortnight.
Jayne would then be responsible for both the short fall in her mum’s aged care fees as well as the mortgage repayments on mum’s home.
In this particular scenario, Jayne had not spoken to anyone before mum had to enter aged care and so she had no idea of the decisions she would have to make. As such, she was not prepared either financially or emotionally with the issues she had to face.
The aged care legislation is complicated but more than that, it is exceedingly emotional, and people should be prepared for and aware of the decisions that they may need to be make before they have to make them.
Talk to an expert who understands what is required so that you are prepared, and nothing comes as a shock. Don’t leave it until the last moment, decisions made under emotional stress are generally not made with the clearest of heads.
Source: Mark Teale | Centrepoint Alliance
Account based pensions and the age pension
/in Financial Advice General Info /by Shellie FisherWould the rate of Centrelink or Department of Veterans’ Affairs age pension increase if the amount being paid from an account-based pension reduced?
The answer is very much a case of “it depends”. There are several factors that need to be considered:
1. If the full rate of age pension is being paid (i.e. currently $1,423.60 per fortnight, including supplements – for a couple, or $944 per fortnight, including supplements – for a single person), reducing the level of pension payments from an account-based pension will not result in a change to the rate of age pension being paid.
2. If a part age pension is being paid and the age pension is assessed under the assets test, a reduction in the level of income being drawn is unlikely to result in an increase in the rate of age pension.
However, if the account balance of the super pension has reduced as a result of a downturn in investment markets, it is worth informing Centrelink of the new balance as this may result in an increase in the rate of age pension (as a result of the level of assets that exceed the assets test threshold having reduced).
As a guide, the age pension for a couple (combined) reduces by $3.00 per fortnight for each $1,000 of assets that exceed the asset test threshold. The asset test threshold for a couple that own their own home is currently $394,500. Conversely, if the level of excess assets reduces, the age pension for a couple will increase by $3.00 per fortnight for each $1,000 reduction in the excess assets.
It is a fine balancing act and some caution needs to be exercised. A reduction in the level of assets may result in the age pension now being assessed under the income test, rather than the assets test. If this occurs, the following comments will be applicable.
3. For account-based pensions being assessed under the income test, the date the pension commenced to be paid is an important factor.
If the account-based commenced after 31 December 2014, and/or if the age pension commenced to be paid after that date, reducing the amount being paid from the account-based pension will not have any impact on the rate of age pension being paid.
4. However, if the account-based pension, and the age pension have both been continuously paid since before 1 January 2015, reducing the income drawdowns from the account-based pension may result in an increase to the rate of age pension paid by Centrelink.
In these cases, the amount of income counted under the income test is the actual income payable for the financial year, less an amount referred to as the deductible amount.
The deductible amount is calculated when the pension first commences and is based on the opening balance of the account-based pension, divided by the relevant number. The relevant number is the life expectancy of the pensioner, or reversionary pensioner (if nominated – in which case the longer of the two life expectancies is used). Once the deductible amount is established, it remains constant for the life of the account-based pension unless lump sums withdrawals are made, in which case the deductible amount is recalculated.
For example, if a 65-year old male commenced an account-based pension (with no reversionary pensioner being nomination) on 1 December 2014, and the opening account balance was $450,000, the annual deductible amount will be $24,272. ($450,000 ÷ 18.54). This amount will be deducted from the actual income being received from the super pension to determine the amount of income assessable under the income test. Therefore, if the level of income being received from the super pension is greater than the deductible amount, reducing the actual income being drawn will result in an increase in the rate of age pension.
Taking this example one step further, if the income being drawn from the account-based pension was (say) $40,000 per annum, only $15,728 ($40,000 – $24,272) would be counted under the income test.
If the super fund were requested to reduce the annual income payments from $40,000 to (say) $30,000, the amount assessed under the income test would reduce from $15,728 to $5,728. This would result in an increase in the amount of age pension being paid.
Having said that, if the level of income being drawn from an account-based pension is less than the deductible amount, a reduction in the level of income being received would not result in an increase in the rate of age pension being paid as the income received from their account-based pension is not affecting the level of age pension being paid. Likewise, there would be little value in reducing the income from the account-based pension to an amount less than the deductible amount, other than perhaps, to preserve money in the superannuation environment.
Therefore, where a person is receiving less than the full rate of age pension, and their super pension is an account-based pension, a reduction in the amount of income being drawn may result in an increase in the age pension entitlement provided the account-based pension commenced to be paid before 1 January 2015.
If this situation applies, and the super fund is being requested to reduce the level of income payments, it is important to ask the super fund to issue an amended “Details of income stream product form (SA 330)” and for this to be given to Centrelink to enable the reassessment of the age pension to be made.
In summary, and increase in the rate of age pension being paid by Centrelink may increase where:
1. A part age pension is being paid and is being assessed under the assets, and there has been a reduction in the account balance of the account-based pension, or:
2. A part-age pension is being paid under the income test and an account-based pension commenced to be paid before 1 January 2015, and the level of income being drawn from the account-based pension is reduced.
If you have questions about your superannuation or Centrelink and Veterans Affairs’ pensions, speak with a qualified financial planner.
Source: Peter Kelly | Centrepoint Alliance
10 things to consider when looking at Aged Care
/in Financial Advice General Info /by Shellie FisherIn October 2018 the government established a Royal Commission into Aged Care Quality and Safety. It commenced hearings in January 2019, provided an Interim report in October 2019, and is scheduled to provide its final report in November 2020.
During the last 12 months the media has reported on several very disturbing issues of neglect, understaffing and abuse which has occurred in a number of aged care facilities in Australia. This no doubt has led to a certain amount of apprehension for elderly people and their families who are about to enter residential aged care.
I can understand this feeling and I do sympathise with people in this situation. However, not all aged care facilities are like those which have grabbed the headlines.
My mum has been in a residential aged care home for the last 16 months. She entered her home just prior to the announcement of the Royal Commission. Over this period, I can assure you that mum has been well looked after, she has put on weight, and she has developed new friendships in the home, not only with the residents but also the staff. Neither my brother, sister or myself have witnessed any actions which have caused us concerns.
People have asked me how we decided which home was best for mum. The following are some of the things we considered when we were choosing her aged care.
1. Affordability – what could mum afford to pay to enter the home and what would her ongoing fees be? Some homes charge an Extra Service Fee which covers internet usage, streaming services, choice of meals or even wine, extra outings, etc. The list is endless. Remember, if you do choose a home which charges this fee you cannot opt out of the fee in the future, even if mum or dad stop using those extra facilities.
2. Location – how close is the home to the people who will visit on a regular basis? What if someone needs to accompany them to see a doctor or to be taken to hospital?. I live 10 minutes from mum which is handy – she has broken her bottom dentures three times and I am able to get them fixed a lot quicker than the facility staff as I am able to pick them up and take them to the closest dental technician.
3. Accreditation– does the home have the necessary government accreditation? Has there been any issues of non-compliance in the past which has resulted in sanctions? You can ask the home, however you should also visit the My Aged Care website which is a government site that provides details of any past compliance issues.
4. Health and Safety– you can ask the home for the latest Health and Safety report which will outline any incidents that have taken place against residents or even residents against staff.
5. Staff to Patient Ratio– these are not consistent across the different states and depending on the level of care – high or low– the ratio will vary. However, it is worth asking the question. I understand that minimum staff to patient ratio recommendations will be part of the final Royal Commission report in November 2020.
6. Bedroom– are you being shown the actual room that mum or dad will move into or is it a show room? Is the room light and airy? Is it a reasonable size? Are you able to fit a table or at least a comfortable chair for a person to sit and watch television or read? Is the room clean? How often is the room cleaned and do they change the bed linen regularly? Is there a panic alarm within reach for a person lying in bed? And is there a private bathroom?
7. Furnishing– is the bed new or at least sturdy and damage free? Is there a wardrobe for mum or dad’s clothes? Is there a lockable draw for valuables? Are the curtains covering the windows clean and fresh? Is there air conditioning? Importantly, is there a television? If so, how old is it? Finally, is there a phone connection to the room?
8. Activities– do they have a regular program of outings, activities and exercise? This was very important from my perspective, my mum does have a short attention span and needs regular activities to keep her brain active and to avoid boredom, loneliness and depression
9. Laundry – how often are mum and dad’s clothes washed? Will the home put name tags on the clothes and if so, who covers this cost?
10. Low Care to High Care– last but by no means least if required will mum or dad be able to move to high care in the same home without the need to move them to another facility?
This is by no means an exhaustive list, but it is a start.
I always think that the best way to approach this process is to look at facility and the room from a personal perspective – if I was moving in what would I want and what would make me happy?
Source: Mark Teale | Centrepoint Alliance
Do we need permission to retire?
/in Financial Advice General Info /by Shellie FisherDo we need to seek permission to retire? The answer is “yes”.
If we have a significant other, having them in agreement is probably a smart idea. Retirement is a significant life event and all parties need to be on the same page, committed and in agreement.
Having the agreement of your employer is also very important. After all, we would all like our exit from the workforce to be mutually satisfactory to all concerned. We want to leave on good terms.
Retirement may be forced upon us as a result of ill-health, redundancy, the failure of a business, or the need to take time out to care for unwell or ageing family members. Often, we don’t have a lot of control over such circumstances.
On the other side of the equation, retirement may be driven by the fact we have reached “retirement age” – although there is no longer an official retirement age in Australia, except in some occupations; or we have reached the age where we can access our superannuation or receive the government age pension.
But for others, retirement might result from the fact we are just tired of the day to day grind of getting up and going to work or our work is no longer fulfilling.
For some, retirement simply can’t come quickly enough because we have so many other things we would prefer to be doing. I think they are the lucky ones. They have purpose.
Many people often retire without a sense of purpose. They just fiddle around the house, maybe watch afternoon TV or take the dog for a walk, or head off to a shopping centre, just to fill in time. It is not uncommon for people to feel lost in retirement.
When we have our retirement mapped out and we have plans, we have effectively given ourselves permission to retire. On the other hand, if we simply meander through retirement without purpose, perhaps we haven’t given ourselves that permission.
For many, retirement will consume around 25 years of our life. That is a long time to be living with regrets. If we are not ready for retirement, then we shouldn’t retire. Even if we are unable to continue in our present job, there are options out there.
Some will say that it is difficult for older people to find work, and that is true, however there are many charities that are keen to get all the volunteers they can and there are many employers willing to take on part-time and seasonal workers. Alternatively, take the skill developed over a lifetime of working, and start your own small business or consulting practice, or commercialise a hobby.
When retirement beckons, embrace it with passion and purpose. Have a plan and most importantly, give yourself permission to do whatever it is you want to do, when you want to do it, without any feeling of guilt.
Source: Peter Kelly | Centrepoint Alliance
Age Pension – not all assets are created equal!
/in Financial Advice General Info /by Shellie FisherYour age pension entitlement can be affected by your assets, whether you own your home, which is an exempt asset (homeowner), are renting (non-homeowner), and if you are single or a member of a couple. The following table provides an overview of the current asset thresholds and limits as at November 2019.
Assets Test threshold for the full age pension
Assets Test upper limits
Here are ten things to consider when you do apply for your age pension.
1. Be aware that the value of your household contents, including your motor vehicle and personal effects, is ’fire sale’ value – not the insured value or the replacement costs. The difference in the two amounts can be substantial and can have a considerable effect on your entitlement. For example, the insured value of your home contents could be $80,000 as opposed to a fire sale value of $10,000. The difference in the two asset valuations could equate to $210 per fortnight in extra age pension just by ensuring that the fire sale valuation is used.
2. Superannuation in accumulation held in a partner’s name who is under pension age is not an asset and not assessable for the purposes of the assets test when calculating your age pension entitlement.
3. Shifting assets between partners is not seen as gifting.
4. Lifetime annuities with a nil residential capital value can be very effective in increasing a person’s entitlement under both the assets test and the income test.
5. A funeral bond up to the value of $13,250 is an exempt asset. For a couple purchasing one each, the total value for an exempt asset is $26,500.
6. Pre-paid funeral expenses and burial plots are also exempt, subject to a couple of conditions – the monies cannot be refunded, there is nothing more to pay and it is a contracted payment.
7. Your home and the – (maximum of 2 hectares) land (curtilage) surrounding your property regardless of the value are exempt from the assets test.
8. Investment properties are an asset which can be reduced by the mortgage secured against the investment property. If the mortgage is secured against your own home, it will not reduce the value of the investment property.
9. Loans to family members (children) paying no interest, which you may not see as an asset, are considered an asset according to the social security legislation. Depending on the amount of money lent, this arrangement can have a detrimental effect on your entitlement, so be very careful before you agree to lending any money to family members.
10. Selling an asset to a family member for less than what it is worth can be viewed as a gift, so again be very careful. Gifting any amounts to your children in excess of $10,000 can have a negative effect on your age pension entitlement.
This is certainly not a comprehensive list of considerations and pitfalls, but it is an overview of the more common issues which do arise.
Applying for an age pension when the time comes can be a very daunting proposition.
If you are in doubt about any of the questions or the information you have supplied, make sure you talk to an expert who understands the forms and what is required so that you are able to claim your maximum entitlement.
Source: Mark Teale | Centrepoint Alliance