Retirees have been feeling the pinch of historically low interest rates since the GFC and this has been further compounded by changes to Age Pension criteria by successive Governments over the last two years, which have seen Age Pension entitlements also fall. Eric Hiam, Pension and Aged Care Expert, looks at some strategies for maximising your pension.
There have been at least four changes in the last two years to the treatment of certain investments and each of these changes has resulted in the reduction of pension, so pensioners have been hit both ways – on their investments and their Age Pension.
So what if anything, can a pensioner do to maximise their pension entitlement and to make the most of what they have in these more challenging times?
Here’s five practical ways to ensure you’re getting your fair share:
Keep your financial situation updated with Centrelink
Gradual changes to your financial situation over time may not have been reported to Centrelink – therefore it is possible that you may be getting less pension than you are entitled, especially if you have been using some of your savings to live off.
I spoke with a new client yesterday, who advised her parent’s Age Pension was $148 per fortnight, whereas my estimate of their pension entitlement was around $480per fortnight each, i.e. they had been missing out on $8,632 pa of Age Pension each.
This may be an error on Centrelink’s behalf or the client’s parents simply may not have kept Centrelink up to date with their circumstances. But be warned – the opposite can also apply. That is, you could be getting more pension than you’re entitled to, which could see you repaying any overpayment.
Use the “market value” of assets
Centrelink use the market value of assets when calculating the assets test. So you should also use the market value of furniture – which is the amount you would get in a garage sale. That being the case, keep the value of your furniture low. Many people make the mistake of using the insurance value (i.e. the replacement value) which may reduce your pension entitlement. If you purchase a new car, it depreciates immediately, take advantage of this and reduce the value of the car in your Centrelink update each year. A four yr-old car purchased for $40,000, may now be worth $25-$28K. If you don’t update Centrelink you could be missing out on $45 per fortnight of pension ($1,170pa). Every dollar helps!
Asset and income tested advantaged investments
Not all investments receive the same treatment under Centrelink Assets and Income Tests and some investments are treated in a way that delivers a pension advantage. Whilst the Government have been changing the rules over the last couple of years to take away the advantages, those changes are grandfathered and hence some of those people who received the advantages, will continue to receive the advantaged treatment. Some of the protected are investments include; complying pensions and allocated pensions – therefore you need to make sure that you don’t make a change to an investment that will lose the advantages. Gifting and prepaid funerals are other areas that might help gain a bit more pension, but be sure to check that the investment income you give up, is not more than the additional pension you might gain. Speak to your financial adviser to make sure.
Consider estate planning options
The death of a partner is hard enough to bear for the surviving partner, but to then also be left to live on less income, can be a double blow for the person grieving. And whilst Centrelink pay a bereavement payment, it is still a bitter pill to swallow. The cost of living for a single person is not half of the cost of a couple, it is about one third less than the cost for a couple. But the change to your financial position as a single person could mean a large drop or even a loss of pension completely, leaving only your investments to deliver your income. I have some recent clients whose cost of living fell by one third but their total income dropped by 52%, leaving a large cash flow shortfall to cover from savings
Consider talking to your solicitor and financial adviser about estate planning options – it might just spare some of the loss of pension. But don’t wait until the death of a partner, get organised ahead of time. Implementing some advice both legally and financially saved these clients $13,416pa and increased the value of the estate by over $170,000 over a 10 year period.
Think twice about hiding assets
This one won’t save you money, but it might spare you a great deal of cost and anguish. Many people decide not to fully disclose their investments to Centrelink, in the hope of getting more pension, but now that Centrelink are data matching in real time with other Government departments, (like the ATO) they are catching out more people than ever before. Therefore, if you have done this, be warned you are highly likely to get caught. You should seek advice to see what you can do if anything to mitigate the impact of having to pay back a large sum of money.
And remember getting good advice is the key to maximising your pension and earning enough income to have a comfortable retirement.
Eric Hiam, Pension and Aged Care Expert & Principal of Balance Financial Solutions
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