ELIGIBILITY for the age pension depends on many things. First, a person must reach pension age. Currently this is 65 for men and 64 for women, depending on when they were born.
For women, the qualifying age increases to 64? for those born between July 1, 1947, and December 31, 1948, and to 65 for those born between January 1, 1949, and June 30, 1952. From 2017, the qualifying age for both men and women will increase in half-yearly increments until it will be 67 for everyone born after January 1, 1957.
Once pension age has been reached, a person must meet a combination of the assets and the income tests. Under the assets test, where one member of a couple is below pension age, the value of their superannuation is not counted as an asset.
Under the income test, all income is counted, including amounts received from overseas. One advantage of receiving a pension from a superannuation fund is that under the income test, it is decreased by a purchase price. Where an overseas pension is received, a purchase price also applies, decreasing what is counted as income.
QI purchased an allocated pension in October 2005 at the age of 61 for the price of $1,443,000. My wife is 58 and earns about $5000 per year from casual employment, working three to four weeks a year. She has $36,000 in a super accumulation account. Our only other income is bank interest about $2000 on total balances of $48,000.
The current value of my pension is $1,549,000. I plan to withdraw $550,000, to give $75,000 to each of my two adult children, and to contribute the balance of $400,000 into my wife's super account. My principal intention is to reduce the minimum annual amount that I am obliged to receive as income from my allocated pension.
My wife and I currently qualify for low-income health cards from Centrelink. Would the gifting jeopardise our eligibility for the low-income concession cards? Would I or my wife incur any taxation liability? Do you foresee any other problems with my proposal?
AUnder the income test for the low-income healthcare card, tax-free lump sum payments from a superannuation fund are not counted. This should mean that by withdrawing the $550,000, there would be no effect on your eligibility for the card. There will be no tax payable as you are over 60 years of age.
If you withdrew $750,000 from your superannuation fund, gave $75,000 each to your children, contributed $150,000 as a non-concessional contribution for your wife before June 30 and then contributed $450,000 after July 1, depending on your other assets counted by Centrelink you may be eligible for a small age pension. This is because your wife's superannuation will not be counted under the assets test until she reaches 65.
QI have dual citizenship: Australian and Swiss. I will be entitled to a partial age pension from Switzerland at age 65. How will that affect my eligibility for the Australian age pension?
AThe pension you receive from overseas will be counted under the income test and possibly the assets test. You should contact Centrelink and advise them of your situation, as you may get the benefit of a deductible amount against the overseas pension. This can happen if you contributed to the fund that will be paying the pension. This is a complicated area of Centrelink regulations. How much is counted will depend on the facts of your case.
Questions can be emailed to super@taxbiz.com.au
Max Newnham's book, Funding your Retirement: A Survival Guide, is available in book stores and as an e-book.
Frequently Asked Questions about this Article…
What is the qualifying age for the Australian Age Pension?
Qualifying age depends on when you were born. Currently it is 65 for men and 64 for women (with staged increases for some birth cohorts). From 2017 the pension age increases in half-yearly steps until it reaches 67 for everyone born after 1 January 1957.
How do the assets test and income test affect Age Pension eligibility?
You must satisfy either the assets test or the income test (whichever gives the lower pension) once you reach pension age. The assets test looks at the value of your assets, while the income test counts all income including overseas payments; special rules apply to superannuation pensions that can reduce the income assessed.
Does my spouse’s superannuation count as an asset when one partner is under pension age?
If one member of a couple is below pension age, the value of their superannuation accumulation account is not counted as an asset under the assets test, which can help a couple’s eligibility until the younger partner reaches pension age.
How are superannuation pension payments and overseas pensions treated under the income test?
Pension payments from a superannuation fund are assessed under the income test but are reduced by a purchase price (a deductible amount) when calculating assessable income. Overseas pensions are also included in the income test and may attract a similar deductible amount in some cases.
If I withdraw a tax-free lump sum from super, will it affect my low-income health care card or attract tax if I’m over 60?
Tax-free lump-sum payments from a superannuation fund are not counted under the income test for the low-income health care card, so withdrawing a tax-free lump sum should not affect card eligibility. And if you are over 60, the lump sum is tax-free.
Could gifting lump sums to children and contributing to my spouse’s super affect our Age Pension eligibility?
Gifting and making non-concessional contributions can change the assets Centrelink counts and therefore affect pension eligibility. In the example given, restructuring savings and contributing to a spouse’s super could make a household eligible for a small age pension because the spouse’s super may not be counted under the assets test until she reaches pension age.
How will receiving an overseas (Swiss) pension affect my Australian Age Pension claim?
An overseas pension will be counted under the Australian income test and possibly the assets test. You may qualify for a deductible (purchase price) against the overseas pension if you contributed to the fund that pays it, but how much is assessed depends on the specific facts — contact Centrelink for a case-by-case assessment.
Will withdrawing money from an allocated pension reduce the minimum annual drawdown requirement?
Yes — reducing the account balance of an allocated pension by withdrawing a lump sum will reduce the balance on which the legislated minimum annual drawdown is applied, which can lower the minimum income you are obliged to take from that pension.
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