Pensioners' dual assessment

MY WIFE is 58 and I am 66. I have retired and have a PSS super pension of $15,000 a year. My wife works full-time as a teacher and earns $72,000. As my wife salary sacrifices into her super scheme 60 per cent of her salary, our combined salary for CentreLink age pension purposes is about $45,000. As a result, I have had an age pension of about $200 per fortnight. At the 2008 Commonwealth budget, the government flagged that salary sacrifice into super would have to be included in calculating eligibility for the age pension and would take effect from 1 July 2009. Are there any grandfather clauses? F.G.

You are quite right. From July 1, salary that is voluntarily sacrificed into super by those under age-pension age is assessable by the income means test. There is some grandfathering, but not related to salary sacrifice, in that existing pensioners will be assessed under both the new and old income tests, e.g. 40 per cent and 50 per cent taper rates, and you will receive the pension amount that does not disadvantage you.

Pension bonus appeal

MY WIFE reached the pension age of 61 in 2001 but unfortunately she was unaware of the pension bonus scheme and applied for the pension. A friend then advised her of the scheme but CentreLink told her she was too late. We have appealed, with as yet no result, on grounds the scheme was not widely advertised in 2001. R.W.

I can't answer for CentreLink's appeal process but I'd be interested to know if you win. Don't forget that from July 1 the income test is ignoring 50 per cent of the first $500 a fortnight of each person's employment income. For example, if you and your wife earn $100 and $1100 respectively, then $50 and $250 respectively will be disregarded from your income. Also, you are now assessed on the income earned in the prior fortnight, i.e. no more averaging or spreading one-off income over a year or ignoring short-term one-off income.

Self-employed income is not counted. You can get around it by setting up your own private company that pays you a salary, assuming this is economically feasible.

Home-loan deal

I AM a 45-year-old divorced woman with my youngest child about to leave home. My only liability is my credit card debt of $2000. I am renting and would like to buy a two-bedroom unit about 600 kilometres north of where I live. I would rent it out until I either wanted to live there, or sell and upgrade. I need about $10,000 for stamp duty, mortgage, insurance etc. I don't qualify as a first-home buyer. Should I get a personal loan to pay for this? I would like to buy soon whilst prices are low. L.M.

Remember that you want to pay off the most expensive loans first and so you should pay off your credit card within the 55-day limit so as to avoid the usurious rates charged. Personal loans are almost universally more expensive than home loans, so I would rather you paid stamp duty etc out of a home loan, if you go ahead. Remember too that if you want to claim your new property as your principal residence, free from capital gains tax, you need to live in it for a while. The ATO accepts three months' residence as proof and, after this, you can rent it for up to six years and still have it free from any CGT liability. If you then live in it again for another three months, you get another six years. There is much argument as to whether prices will rise or fall after the Federal Government's $7000 boost for existing properties ($14,000 for new ones) diminishes from September but I doubt that it will make as much a difference as rising consumer confidence and rising interest rates. Be sure not to borrow too much.

Super goes short

THE contributions limits to apply from July 1, 2009, are $25,000 for those under 50 and $50,000 for those over 50. I understand these limits to include: the ATO's portion, i.e. the 15 per cent contribution tax on all employer levy amounts a further 15 per cent of any salary sacrificed amounts you make into your super account admin charges and insurance premiums. So in fact the limits that you can really put into super are much lower than $25,000 and $50,000 respectively. D.P.

Correct. If you salary sacrifice $50,000, then after the Government's take of 15 per cent, or $7500 (a far larger charge against your savings than that from any adviser or fund manager), you will see $42,500 added to your super. If you pay an entry fee, that too will reduce your net amount but you should be readily able to find a fund with no entry fee (and not a nil entry-fee fund with higher annual fees). Admin fees can be reduced by using a low-fee fund such as the Colonial First State Wholesale Super Fund (minimum $100,000) or the less flexible industry funds.

When it comes to insurance, then a couple over 50 and approaching retirement with a reasonable super benefit and no young dependants probably does not need insurance. Similarly, young people with no dependants don't need life insurance and so should be aware that some funds, notably industry funds, have opt-out insurance plans, i.e. they will be charged for it unless they opt out. Young people are discouraged from doing this (because their money is valuable to the pool of insurance as they are less likely to claim) by being told that, to re-apply for insurance later in life, they will then have to take medical tests. However, they can probably avoid this by simply rolling over to another super fund.

If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Helplines: bank ombudsman 1300 780 808 pensions 13 28 00.