9 Dec 2011 | Superannuation
For many baby boomers the superannuation guarantee contributions made by their employers, although having increased their retirement savings, will have come too late and they will still need to depend heavily on the age pension to survive. The amount of pension they receive will depend on the total value of their assets, excluding the family home, or the amount of income they are earning from investments.
Q. I am confused about what income figure should be given to Centrelink. The total income earned in the year or the amount shown on my tax return with deductions, as I have invested some in shares and an investment property.
A. Under the income test investments are divided into two categories. For the first category the actual income earned by the investment is counted by Centrelink. Your investment property is an example of this type of asset. The net taxable income you earn will be counted under the income test.
The other category includes all financial investments such as cash, bank accounts, term deposits, and shares. Centrelink applies a deemed earning rate to the total value of these investments that it counts under the income test. This means the income counted for you will be the net taxable rental income plus the income you will be deemed to have earned on the value of your shares.
Q. I am a 54 year old female earning $40,000 per year and have $50,000 in super. I own my own home and have $20,000 in the bank, own a car and no other investments. How much can I have in super and still be eligible for the aged pension? I know I will have to work till I’m 57 before I can get the pension.
A. The age limit of 57 that you referred to is not when you will become eligible for the age pension. This is the age at which you can retire from full-time employment and gain access to your superannuation. As you were born after 1957 you will not be eligible for the age pension until you turn 67. Under the current assets test limit you could have up to $186,750 in assets, including your superannuation, your car and other investments, and still receive the full age pension is a single person.
Q. We are non home owners with $50,000 in assets being a car and contents. I am 66 and my wife turns 65 soon. I am a bit confused about the assets and income test used by Centrelink. In addition to my super balance of $140,000 I have a transition to retirement pension worth $330,000 and my wife has super of $64,000.
When I retire if I put all of what I have into super can I withdraw any amount tax free? Other than the deeming rate applied by Centrelink, would the amount I withdraw be counted as income?
A. As you are over 60 years of age any amount withdrawn from your superannuation fund, as long as it is a taxable fund, will be tax free. Amounts held in superannuation a counted under the assets test, and can also have the deeming rules applied to that value if a pension is not being taken.
Where a pension is paid from a superannuation fund the full amount received is not counted as income by Centrelink. Instead the amount received is reduced by what Centrelink regards as the purchase cost of the pension. This is calculated by dividing the value of your superannuation when you started the pension by your life expectancy at that time.