Legal Tip 178: Double Dipping with the Pension

Double Dipping with the Pension


Have you ever heard of double dipping with the pension? This is where you spend your assets so that you can get the pension.


Here is a brief example:

A pension age couple who have $1mil in super and own their own home may not be able to get the pension because the super is over the asset threshold of $830,000.

The $1mil may be earning them $30,000 in income per year.


Another couple may have $1mil in super, but they spend $540,000 on a bloody great holiday.

Their assets are thereby reduced and they now qualify for a part pension. For the couple the pension works out to be $982 per fortnight or $25,532 per year. But they still have $500,000 cash which they could invest and get $15,000 per year at 3% return. This would total $40,532 per year.


So by blowing $540,000 on expenses a couple could increase their income by more than $10k pa.


Believe it or not many have this attitude – they think they deserve the pension and they will do almost anything to get the maximum allowable. Including spending say $540,000 to qualify for $10,000 per year extra income.


Modelled on an article from The Tax Institute https://www.taxinstitute.com.au/news/3-november-2017

 

Yet if they gave the $540k to a family member, they'd be locked out of the pension for 5 years. Makes no sense that you can spend it but you can't give it away.

 

Helps the economy i guess.

 

I've seen people start planning the give-away process 10 years before retirement so they are all set when the time comes.

 

I've seen it too. I heard of one person who wanted to give a $1mil property to his son, giving up $50k pa in income just so that he could get a $30k pension. Son would have been tax more than the pension received by the dad almost and exposed to creditors and family law claims.

 

All too common, unfortunately.

 

Pension strategies do require financial advice. For the fortunate ones they WONT get an aged pension. I would rather have $2m in super than get the aged pension. BUT if you can get something it can be a saver.

We often encounter those who are close to asset limits to invest in funeral bonds and the like. It excludes from assets and doesnt need to assess under income tests with deeming. Same with minor gifts under the thresholds. So important not to gift to adult kids and grandkids...Ignore them and get advice.

One of the best avoidance mechanisms is NOT selling your own home. The number of times we see poor advice from kids to parents to sell their home and they risk loss of their whole or most of the pension is terrible.

Aged care financial advice is a huge industry now for a reason.

 

And yet they wonder why the retirees don't sell their home.

 

Hi Paul do you advise on this? I’m looking for a good advisor.

 

Interesting I would like to know whether you think this might be a particular demongraphic that behaves this way? I used to see the 'heroic' generation be very keen on their pension - frugal. But then some ppl get huge pensions out of schemes (think politicians etc) and still have this misplaced desire for the pension.

With the millenials they will have to be 95 to get the pension, so maybe this attitude will disappear as the population ages? What do you think @Terry_w ?

 

I dont but our firm includes a financial advisory that includes aged care advice. Call the office if interested.