Nick Bruining Q+A: A small tweak to boost wife’s pension while you work

Question

My wife is receiving a part-age pension because I am still working. She is older than me and I will be old enough to receive a pension in two years’ time.

I currently have a transition to retirement pension account running alongside my superannuation. I would like to stop work soon and draw down a pension from my super.

Will I have to start a new account-based pension, and can you offer any other suggestions?

Answer

As your employment income is affecting your wife’s age pension, we can assume her pension payment is being affected by the Centrelink income means test.

In addition to your pre-tax income from employment, Centrelink will be including the deemed income from all of your financial assets, including the money in the transition to retirement account.

As you have already reached the age of 60, when you cease any employment and notify your super fund, the status of the money in the ABP will change from a transitional arrangement to an unrestricted “normal” ABP.

While you’ll still be required to draw down the minimum amount of 4 or 5 per cent of the June 30 account balance based on your age, there will no longer be an upper limit.

If your combined total assets at the time you cease work exceed $481,500, her pension will continue to be affected. But in this case, the Centrelink asset means test might apply. If you are non-homeowners, a higher limit of $739,500 might apply.

One strategy to get you under the threshold and your wife the full rate of age pension would be to move some, or all, of the ABP money back into superannuation accumulation phase. With your money back in that phase, your wife could become entitled to half the couple’s full maximum pension payment, which is currently $888.50 a fortnight — or $23,101 a year.

Money held in accumulation phase will be ignored by Centrelink until you reach pension age. You could either keep some of the money in an ABP and top up your wife’s pension with those payments, or you could simply make lump-sum withdrawals from super as required.

You could also do a combination of the two approaches. Because you are over 60, no tax is payable on any money withdrawn.

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Question

Your recent article about changes to aged care raised some very important issues and provided some very useful information.

There are lots of things to consider and we are wondering whether it will be worth accessing the system at all.

My wife and I will be fully self-funded under the new aged care system and it is unlikely that we will ever be eligible for part-age pensions.

Being fully self-funded, we are wondering if the lifetime cap of $130,000 applies to us as well?

Answer

The cap you are referring to relates to the new arrangements which came into play on November 1 and apply to all non-grandfathered care recipients.

There are two tests that apply — a financial cap and a time-based cap when you move into aged care.

Any payments you make towards non-clinical care while receiving Support At Home count towards the financial cap of $130,000, which is indexed on a quarterly basis and is already sitting at $135,318.69.

Non-clinical care includes independence services such as personal hygiene and everyday living services including things like cleaning and meals.

The time-limited cap applies when making a non-clinical care contribution in residential aged care for four years — or 1460 days, regardless of the amount paid.

The non-clinical care contributions do not need to be continuous and are also accumulative and included in the calculations of the four-year time-limited cap.

Any contributions made by care recipients towards their Support At Home services before they enter residential care will also count towards their lifetime cap.

Be aware that these figures apply at an individual level, and for aged care couples are not treated as a single entity.

Nick Bruining is an independent financial adviser and a member of the Certified Independent Financial Advisers Association