If you receive an Age Pension and are thinking about downsizing, knowing how that move is going to affect your pension is important. Some people have a very fixed view of “I don’t want to downsize my pension when I downsize my home”, while others simply want to keep some pension (and the benefits that go with that) and ask “How much can I have and still get a pension?”
Before we start it’s important to know that the Age Pension is calculated under an asset test and an income test, whichever produces the lowest amount of pension is the one that applies.
The majority of people are homeowners, with their home being an exempt asset from pension means testing. Outside the home singles can have $280,000 in assets while couples can have $419,000 before their pension is affected.
The asset threshold is $224,500 higher for people who are classified as non homeowners, so $504,500 for singles and $643,500 for couples. People who own their home but are classified as non homeowners have the value of their home included in their assets. Generally speaking there is no detriment as the circumstances under which you are classified as a non-homeowner is normally where you have moved into a granny flat or retirement village and paid less than $224,500 for your home.
Once your assets go over the asset test threshold that applies to you your pension reduces by $7,800/year for each $100,000 of assets – which means unless you are earning 7.8%p.a on those assets you are losing money. The asset cut off for homeowners is $622,250 for singles and $935,000 for couples. Non homeowners have a cut off point of $846,750 for singles and $1,159,500 for couples.
Under the income test singles can earn up to $190 per fortnight while couples can earn up to $336 per fortnight before the pension reduces. Income includes wages, foreign pensions, rent from investment properties and deemed income from investments such as bank accounts, term deposits and shares and account based income streams. Deeming assumes that financial investments earn a certain rate of income, regardless of the amount of income they are actually earning. Currently the deeming rates are 0.25% on the first $56,400 (single) or $93,600 (couple) and 2.25% on the assets above.
Once your income goes above the relevant threshold your pension reduces at 50c per dollar under the income test. The income test cut off for singles is $2,246 per fortnight and for couples it is $3,431 per fortnight.
The Centrelink work bonus is used to reduce up to $300 per fortnight of your assessable income from work. You can accrue the work bonus, up to a maximum value of $7,800 per year, so if your work is not consistent you can use your unspent work bonus at another time. For this year there is an extra $4,000 in the work bonus, taking it to $11,800 until December 2023.
The cherry on top of the pension is rent assistance. If you are downsizing to a retirement village where the purchase price is $224,500 or less or if you are moving to a land lease community (regardless of the price you pay for your home) then in addition to your pension you may also be able to claim rent assistance on the weekly or monthly village fees. Rent assistance provides up to $152 per fortnight for singles and $143 per fortnight for couples depending on the amount of rent you pay. To receive the maximum amount of rent assistance your fortnightly rent needs to be at least $338 per fortnight for singles or $410 per fortnight for couples.
If you are thinking about downsizing into a retirement community ask your sales consultant for a Village Guru report. The report clearly spells out the village costs upfront, while you live there and when you leave and can provide you with an estimate of your Age Pension and Rent Assistance entitlements and Home Care Package costs. www.villageguru.com.au