Pay rise for pensioners a game of give and take

Bungee Jumping in Macau

The West Australian  20 September 2018

It’s time to whip out the champers and toast the Federal Government. The half-yearly rate rise in pensions and allowances will kick in on Thursday.

But if your bottle shop has a $5 section, best head there for your fortnightly bubbles on the patio.

The maximum single age pension will rise by $8.70 a fortnight to $916.30, including supplements. The couples pension will rise by a total $13.20 to a $1381.40 fortnightly maximum combined payment, including supplements.

And in the great tradition of Canberra, what they give with one hand, they’ll whip away with the other.

This week is when Centrelink updates the value attached to shares and managed funds. New valuations will also be put on any superannuation held by seniors in accumulation phase.

These valuations are updated every March and September at the same time as when base pension rates change.

The changes could hit those on a part-pension affected by the assets test and the income test.

Given the sharemarket has risen about 3 per cent since March, people with decent chunks of shares could expect to have some of their base pension increase taken away because of means testing.

The valuations of super account-based pensions, the preferred mode for retirees, are updated on January 1 and July 1.

For those who miss out on a pension, all eyes will be on the new Commonwealth Seniors Health Card threshold that is set to take effect on September 20 to coincide with the pension base rate increase.

Indexed to inflation, singles can now earn up to $54,929 a year and couples can earn a combined $87,884 to get the CSHC.

And in the tradition of keeping us confused, how that income is anything but straightforward. It needs explaining.

It is a combination of taxable income and deemed income on certain investments.

Don’t you just love this stuff?

Taxable income includes gross employment income and income from investments such as shares, managed investments and properties, less allowable deductions.

Things get confusing if you have an account-based pension drawing down on your superannuation savings.

The total amount of income you receive is exempt if the fund was established before January 2015 and you held the CSHC at the end of 2014.

If the account-based pension was established after the end of 2014 and you became eligible for the card after January 2015, the account-based pension has a deemed income applied to it.

The methodology for deeming is identical to the method used to calculate the age pension under the income test.

The first $51,200 for singles is deemed to be earning 1.75 per cent and the balance, 3.25 per cent. For couples, the same rates are used but the threshold where 3.25 per cent kicks in is $85,000.

The bottom line is that for a single retiree with no other taxable income, the account-based pension balance needs to be under about $1.71 million to qualify for the card.

For couples with no other taxable income, the magic number is about $2.74 million in an account-based pension.

And here’s a beaut trick.

If you’re a smidge over the threshold, you could transfer some of the superannuation savings money in your account-based pension back into the super accumulation phase.

Super in accumulation phase doesn’t count as assessable income in CSHC calculations.

Don’t forget the potential negative of having super in accumulation phase is that the fund pays tax on earnings at a rate of up to 15 per cent. Whereas earnings on super in account-based pension mode are not taxable.

Hopefully, the benefits gained by having access to the card exceed any tax paid in the super.

If you pursue this strategy, subsequent lump sum withdrawals for big expenses should come from the accumulation super before you touch the pension phase super.

Bear in mind that because you are over 60, these withdrawals are tax free and don’t count as income towards your CSHC income test calculations.

Original article here

 

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