Ask the Expert: Pay off your HECS debt or save? We crunch the numbers

Question 1

  • My daughter is at university on a good scholarship as well as having a high-paying part-time job. She is living at home and has no debts and has substantial savings. Is it better to pay off her HECS debt with CPI increasing or put her income in a high-interest savings account? (In previous years she has paid upfront to get the 10 per cent discount, which is no longer available).

Yes, you are correct in that the 10 per cent up-front discount is no longer available. It ended on December 31, 2022.

It sounds like your daughter is doing well. One of the most important features of having money is that is does give you some choices.

To recap, if someone has HECS/HELP debt the compulsory repayments are made once your annual income is above $51,550, as per the table below.

Technically no interest is charged on the loan, however, it is indexed by CPI. Which in practice is similar to interest being added. As CPI has jumped, after being low for many years, indexation applied to loans was 7.1 per cent.

This has got many people thinking they should make voluntary repayments to have less interest/CPI applied and so they can pay down their loan quicker.

The 7.1 per cent indexation was a real shock to many, and it meant that unless you were earning more than $112,985 your loan was increasing even after your compulsory repayments. There are real concerns about the fairness of such a system.

It’s hard to give a straight yes or no answer for your daughter without knowing her personal circumstances, such as amount of debt, income, and her financial goals, e.g., is she saving for a home deposit?

A couple of things to note if paying down your loan.

Firstly, you cannot get the money back, there is no offset or redraw available, so if you do have other financial plans, keep enough funds aside for those.

Secondly, CPI is applied/calculated as of June 1 each year. Therefore, there is no financial benefit in making the voluntary contribution from July to April.  Best to have funds earning interest for you, then make the voluntary contribution say at the start of May (to give the ATO time to process the transaction prior to June 1).

It appears CPI is coming down, which will mean lower indexation on HELP next year.

However, if your daughter has the financial capacity to clear her debt and doesn’t have any other pressing financial objectives, that sounds like a reasonable plan.

Question 2

  • I am 65 and retired. I have superannuation of $220,000. My partner is 10 years younger and still working. She earns $110,000 pa. Will I be entitled to any government pension when I turn 67? Thanks, Julie

Hi Julie,

Your partner’s income will be counted under the income test when working out whether you are eligible for the age pension.

Currently, as of September 2023, you can receive $3568 per fortnight ($92,760 per annum) in income combined and still be eligible for a part age pension.

If your partner’s income is above this figure when you are 67 you will not be eligible for the age pension, until/unless she moves into a lower-paying job or retires.

It’s also worth noting that age pensioners are eligible for a ‘work bonus’ where the first $300 of employment income each fortnight does not count under the income test.

However, this only applies for those of age pension age, not their partner’s employment income if they are below age pension age.

Question 3

  • I am 71 and have been retired one year. I get the age pension. I am running short of money. Can I get some of my super as a lump sum and not pay tax?

Yes, given your age you can access all of your super at any time.

Whether that means taking out a lump sum or converting it to a long-term income stream. These days, many people do a combination of both.

As you are over 60 all payments, lump sum or income is received tax free.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.

The New Daily is owned by Industry Super Holdings

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