Couples can do the ‘Smart Shift’ to maximise age pension payments
There are ways couples can rearrange their financial affairs to maximise their eligibility for Centrelink entitlements.
As a retired couple, managing your superannuation and other assets effectively can have a significant impact on your ability to claim the maximum age pension. One of the smartest strategies for retirees over 60 is what financial planners call the ‘smart shift’. By understanding the rules around superannuation and Centrelink’s asset and income tests, couples can rearrange their financial affairs to increase their eligibility for the age pension.
What is the ‘Smart Shift’ strategy?
The ‘smart shift’ strategy involves converting part of your superannuation income stream back into an accumulation mode before reaching the age pension age. This clever move ensures that your super balance is not counted as an asset when applying for the pension, helping you maximise your entitlement. Here’s a breakdown of how it works:
- Convert super income stream to accumulation mode: If one member of a couple is nearing pension age (67), it’s possible to convert their super income stream to an accumulation account. This step is crucial because the balance in an accumulation account is not assessed under the Centrelink asset test until the pensioner reaches the age pension age.
- Eligibility for maximum pension: By reducing the couple’s combined asset value, you can make it easier for the partner who is not yet of pension age to qualify for the maximum age pension. The age pension can provide up to $22,000 annually, offering a much-needed financial boost in the early years of retirement.
- Partial superannuation rollback: For some, rolling back the entire income stream into accumulation mode might not be the best option due to tax implications. A financial planner might suggest a partial rollback, leaving a portion of the super in income stream mode for regular withdrawals while reducing the asset base that’s counted for the pension.
- Non-financial assets: Don’t forget that non-financial assets, such as the family home and personal possessions, are also part of the asset test. Therefore, it’s important to understand how these assets will impact your total asset value when calculating eligibility.
Why it’s important for couples
For couples nearing retirement age, the ‘smart shift’ strategy is an effective way to ensure that you’re making the most of the government entitlements available. By converting your superannuation income stream to accumulation mode, you can potentially lower your combined asset value, thus making it easier to meet the Centrelink asset test and qualify for a higher age pension payment.
The timing of the shift
While there’s no strict rule on when to shift your superannuation from an income stream to accumulation mode, it is generally recommended to do this before your spouse reaches age pension age, in this case, 67. This will simplify the process and ensure that you have enough time to meet the age pension requirements.
Considerations before making the shift
While the smart shift can be beneficial, it’s important to consider some key factors:
- Tax implications: Superannuation in accumulation mode is subject to tax, which can reduce overall returns. This is why many retirees opt for a partial rollback strategy, leaving some super in the pension account to take advantage of tax-free investment income.
- Asset and income limits: You need to ensure that your total assets, including superannuation and non-financial assets, remain under the asset test limit for couples. The goal is to reduce your total asset value to below the threshold to maximise your pension entitlement.
- Professional advice: Financial planning for retirement can be complex, especially when trying to navigate Centrelink’s rules. Seeking advice from a financial planner can help ensure that you are taking the right steps to maximise your pension payments and preserve your superannuation for the future.
The ‘smart shift’ is a practical and effective strategy for retirees looking to maximise their age pension payments. By converting superannuation from income stream mode to accumulation mode, couples can reduce their asset value and qualify for the maximum age pension. This strategy, combined with careful financial planning and an understanding of Centrelink’s asset test rules, can provide a much-needed financial cushion in the early years of retirement. Remember, while the smart shift can be a powerful tool, it’s important to consult a financial planner to ensure you’re making the best decisions for your unique situation.
Case Study: Maximising Age Pension Payments with the ‘Smart Shift’ Strategy
Background:
Peter, 64, and his wife, soon to be 67, are retired and living off Peter’s self-funded superannuation. Their combined assets are just at the threshold of $1.045 million, which is the limit for age pension eligibility. Peter receives fortnightly income from his $950,000 super balance, while his wife has less than $15,000 in her super. The couple wants to know if they can rearrange their finances to qualify for a higher age pension once she reaches 67.
The ‘Smart Shift’ Strategy Explained
- Convert Super Income Stream to Accumulation Mode
Peter can convert his super income stream into accumulation mode before his wife turns 67. This reduces the asset value assessed by Centrelink, which could help them qualify for a higher pension. - Maximising the Age Pension
By doing this, Peter’s wife could qualify for half the home-owner couple rate of the age pension (currently $862.60 per fortnight). This is a significant financial boost that will help support their retirement. - Partial Super Rollback
Instead of rolling back the entire $950,000 income stream, Peter can transfer part of it (e.g., $600,000) to accumulation mode while leaving $350,000 in the income stream. This reduces the taxable portion of their super and keeps their combined assets under the asset test limit. - Managing Non-Financial Assets
Peter and his wife must consider their non-financial assets (such as their home). With careful planning, they can keep their total asset value below the $1.045 million limit, ensuring eligibility for the pension. - Tax Considerations
Superannuation in accumulation mode is subject to tax, but by retaining some super in pension mode, they can benefit from tax-free income and better investment returns.
Timing and Flexibility
The ‘smart shift’ can be done before or after Peter’s wife turns 67, but doing so in advance simplifies the process. Peter’s plan to withdraw $30,000 every six months from his super is fine, but having a portion of super in pension mode provides more flexibility and tax benefits.
Conclusion
By implementing the ‘smart shift’ strategy, Peter and his wife can maximise their age pension entitlement and reduce their asset value, ensuring a stable and secure retirement income. Consulting a financial planner is crucial to tailor the strategy for their specific needs.
However, it’s important to consult with a financial planner to tailor this strategy to your unique circumstances and make the best decision for your retirement. With careful planning, couples can navigate the complexities of the age pension and superannuation system, ensuring a more comfortable and financially secure retirement.
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