Nick Bruining Q+A: Cash rich? Here’s how to reduce your assets and get yourself a Centrelink age pension

Question

Can you advise my wife and I on what we should do with about $750,000 we have in bank saving accounts.

We also have an apartment worth $350,000, own our home and have no debts and no superannuation funds.

We are both 73 and do not qualify for a Centrelink pension because of the asset test and we do not have a financial adviser.

Answer

Our first matter is to determine how close you are to receiving any concessions from Centrelink.

Assuming a realistic and modest value of $30,000 for your fixed assets and second-hand car(s), your Centrelink-assessable assets are about $1.13 million, which puts you about $72,000 over the upper cut-off threshold for a part-age pension.

You might look to reduce your asset by this sum, including pre-paying for your funerals, gifting to your loved ones, making repairs to your home or taking a nice holiday. You might also explore the use of complying annuities which would provide you with a guaranteed, indexed income for life — but be aware only 60 per cent of the invested amount is assessable under the asset test.

Combined with the other strategies, you might only need a $50,000 annuity to allow you to qualify for a part-pension. The minimum amount payable to you both from Centrelink would be $89 a fortnight — and you would receive a Pension Concession Card.

You might also consider investing some of the money into superannuation using the bring-forward rules. You could each contribute up to $360,000, which could then be turned into tax-free account-based pension funds.

Within the fund you could incorporate longer term growth strategies which should assist in ensuring the spending power of your money is maintained as you move through retirement.

Continue to objectively assess the financial viability of the investment unit weighing up the net income received, likely future capital and the “convenience” of owning an investment property.

Question

Following your recent article regarding gifting, I have a question.

If I am on the age pension and I buy a $15,000 car for my son, can I then claim it as a gift? And under the $10,000-a-year limit only $5000 would be counted under my assets test for five years?

However, if I classify it as a loan — and he pays $100 a month — then the entire $15,000 is counted as an asset until the loan is repaid, which could take about 12 years.

Is this correct?

Answer

You are partially correct. If you buy the car and then gift it to your son, the real value of the car is unlikely to be $15,000 if purchased from a car dealer.

Instead, use the value of the car if you were to immediately sell it privately. It would not be unreasonable to see the value of the car reduced by 20 per cent, meaning the “gifted” value might be closer to $12,000.

The additional $2000 in value over $10,000 will be held as a deprivation or “gift” on your Centrelink records for five years from the date of the gift. Gifts are recorded as a form of financial asset and are included under both the asset test and income test, with the deeming system applied.

At the very worst — and only if you are affected by the asset test — the most you would lose, based on a $2000 deprivation, is $6 a fortnight for five years.

However, it is likely the gift will have no effect on your Centrelink pension. The gifting rules only affect a person who is not entitled to or only receives a part-pension because of the application of the means tests.

If you are in receipt of a full age pension — currently $1149 a fortnight, or $866.10 each for couples — and the Centrelink records accurately reflect your current position, the gift will not affect your pension.

In essence, your “penalty” is that you have lost the use of the $15,000 used to buy your son’s car.

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