For some reason, we wait until the last minutes to seize an opportunity.
The end of a financial year is not only a good time to review your tax position, but it is also an opportunity to make the most of your age pension entitlements.
The end of the financial year is fast approaching. Now is the time to review your financial position, and no, I am not talking about the usual subject “taxation”.
I am talking about people who are in receipt of an age pension or whose assets may just preclude them from getting an age pension or those who are residents of aged care homes.
Why is now a good time?
On 1st July each year, the assets and income test thresholds for the age pension are increased to account for an increase in the consumer price index (CPI). This increase results in a corresponding increase in the upper threshold limits at which a person is precluded from receiving an age pension. This coupled with recent market price decreases could possibly open doors to a part pension and 100% of the associated benefits.
Threshold amounts have not been released, however, if you are of age-pension age and may not have qualified in the past because of your assets, now could be the time to review your situation.
As an example, a couple who own their own home and have assets other than their principal place of residence of $900,000 could, with some careful planning, be eligible for the age pension post-1 July 2020.
The current upper asset dollar threshold at which a person is not entitled to any age pension for a couple who own their home is $869,500. If the threshold is adjusted by 2 per cent, this will increase to $886,890.
While this still puts them over the threshold, they could gift $10,000 before 30 June and then gift a further $10,000 after the 1 July to bring their total assets to $880,000. The result would be that they may be entitled to an age pension at the minimum rate of $56.40 per fortnight or $1,466.40 p.a, combined.
I think you would agree, this is not a bad return for gifting $20,000.
I should point out that under Social Security legislation, you can gift an amount of $10,000 each financial year, up to a maximum of $30,000 over a period of five years.
For the person who is averse to gifting away assets, they could, if they wished, take advantage of investing $13,250 into a funeral bond. As the funeral bond is an exempt asset, a couple could invest into two bonds (one in each name) and reduce their assets immediately by $26,500 and achieve a similar result.
On 1 July, the amount a person can invest into a funeral bond will also increase.
For the people who are in receipt of a part age pension because of either their assets or income, the changes to the threshold levels on 1 July will also mean an increase in their age pension. Any recent decreases in assets could also provide a further increase.
For these pensioners, now is also a good time to review the assets and income that are being assessed by Centrelink or Veterans Affairs, to ensure that the amounts being assessed are correct.
The other good news for age and service pensioners assessed under the income test is that on 1 July, the deeming thresholds at which the value of their financial assets are assessed at either the lower or higher interest rate will also increase, resulting in a further potential increase in their pension.
The Social Security legislation as we know is complicated and can cause people to scratch their heads trying to understand if the pension, they are receiving is correct.
Advisers role is to understand the legislation and how it relates to their clients’ circumstances to help ensure you are receiving your correct entitlements. The adviser, is the person you can turn to when you are confused, wondering if the letter you have received from either Centrelink or Veterans Affairs is correct.
Opportunities of a Lifetime? Yes as you will not have the opportunity again to implement the FYE19 changes after 30th June.
Stay safe with Peace of Mind