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How downsizing your home will affect your pension in retirement

There are a few things to consider when selling and buying a home in retirement.

There are a few things to consider when selling and buying a home in retirement. Photo: Getty

Question 1. We are a couple on the pension. The principal home is in the wife’s name. If we downsize and buy a property in both names, how will this affect age pension?

If you are a member of a couple, then Centrelink adds all of your assets and income together, regardless of whose name any property, investment, or income it is actually in.

So, currently you would be treated as home owners and, of course, your principal place of residence does not get counted under the asset test.

If you sold and bought a new home in joint names, the situation would be exactly the same.

The main issue to consider is if you have funds left over after selling then buying a new home, these funds would fall under the asset test, and if in a bank account or similar they would be deemed under the income test.

Question 2. I am 70 years old and have a superannuation account with an industry fund and an account-based pension account in a retail fund. I also receive fortnightly Defined Benefit payments.

With my entitlements to the retirement account and the DB, I already reached my Transfer Balance Cap of $1.6 million.

In view of the poor performance and services of the retail fund, I wish to close the pension and move the whole balance to a new pension account with the industry fund where I already have a superannuation account. 

I have been advised by the industry fund that in order for me to open a pension account, I would need to: First open a new superannuation account; transfer the fund balance from the retail fund to this new account; once the transfer is completed, open a pension account and transfer over the balance from the new superannuation account, which will then be closed.

Am I allowed to undertake the steps as stated in order to move the balance from the retail fund to the new industry fund and then transfer the balance to the new pension account?

The good news is that yes, you will be able to move your account based pension to a fund that you choose.

In simple terms, the transfer balance cap operates under a debit and credit system.

When you roll out (transfer out) from your existing account-based pension this will create a debit and when you roll in (transfer in) to a new account-based pension this will create a credit, they should always match, so no net effect on your transfer balance cap.

As an example, if you closed your existing pension and it has a balance of say $1,500,000 this would be a debit. Once this same amount hits the new pension it creates a credit of the same amount.

Even if your current account-based balance is above your transfer balance cap of over $1,600,000 it makes no difference, as the debit and credit counterbalance.

Some funds will allow you to transfer directly into a new account-based pension, while others have an additional admin step of transferring into their super accumulation first.

From what you have stated this seems to be what this particular fund requires. In this instance, just ensure you instruct the fund only to transfer the exact amount received from your old fund into the new pension account.

Question 3. I have a mortgage of $170,000 and average income of $140,000. I have approximately $760,000 in super conservative with AustralianSuper and putting in 12 per cent per fortnight.

I am 57 years old and married. Should I be looking into a managed fund with a financial consultant? I would like to retire by 65 if possible and possibly still get part pension.

Given your age you should be maximising your (pre-tax) super contributions and balance.

You have an annual concessional cap of $27,500 which you should look to target. This cap includes your salary sacrifice contributions and employer SG contributions.

As your super balance is over $500K you cannot use the concessional carry-forward rules. However, there may be an opportunity for your partner to also contribute to super, and if their balance is under $500,000 utilise the carry-forward contribution rules.

If your partner is a low-income earner then you could look at making a spouse contribution, which may also entitle you to a tax deduction in your tax return if they earn under $40,000.

After maximising your super, you can then look to reduce debt.

Depending on your overall situation you may be eligible for a part age pension once you attain your age pension age of 67.

Home owners are eligible for a part age pension if their assets are less than $915,500 (as at July 2022).

And yes, to help you refine your goals, and then to meet them, seeing a financial planner would be a good idea. Contact the Financial Planning Association or speak with your super fund.

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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