Finance Q&A

Q&A – John’s self-funded super

Q. We are going to be self-funded retirees next year when I turn 60 years of age. Does this allow us to be eligible for a health care and concession card?

A. Many self-funded retirees will be eligible for the Commonwealth Seniors Health Card (CSHC). To be eligible you have to be of Age Pension age and with a taxable income under $50,000 for singles and $80,000 for couples or $100,000 for couples separated by illness. There is no asset test for the CSHC. You can read a number of fact sheets on the Department of Families and Community Services website. This should give you a basic idea of what you may be entitled to and the eligibility criteria you need to meet. You can also get more information from the @boutSeniors’ Centrelink page

Q&A – UK Seniors’ Card

Q. Derek
My wife and I – both seniors and British Subjects in the UK on a State Pension – are visiting Australia later this year. Are there any concessions available to visiting seniors?

A. Unfortunately overseas visitors cannot apply for an Australian Seniors’ Card; however, it is common practice, though solely at the discretion of the supplier, to honour overseas Seniors’ Cards and apply the same discounts that would be received by holders of Australian Seniors’ Cards, so it is always worth asking.

Also, check out the @boutSeniors ‘Classified’ section click here for some fabulous discounts, such as 30% off Avis car hire. These discounts are available to all members of our site, not only those with Seniors’ Cards. We hope you have a safe and happy trip.

Q&A – lost superannuation

Richard Sheargold answers John’s question about where he might go to look for some old superannuation money.

Q. John
From February 1981 to December 1984, I was employed in NSW as a hospital laundry manager and then again from February 1985 to November 1985. During this time, I believe that I paid the normal superannuation as required. When I retired due to ill health in November 1985, however, I am unaware if I withdrew my super at that time. Can you please advise me as to whom I can get in touch with to receive an answer to my query.

A. It sounds like you were employed by the State Government of the time. Now back then super wasn’t compulsory; however, I am certain the State Government had the State Super scheme going. You have two options as I see it. Firstly, you could contact State Super at http://www.statesuper.nsw.gov.au/default.htm . They may be able to search for you. Alternatively, you may be able to search through the lost super website http://www.findmysuper.com.au/.

Q&A – assets test

Independent financial adviser, Richard Sheargold, answers a concerned daughter’s question about how the sale of her mother’s house will affect her Centrelink entitlements.

Q. Apryl
My mother is soon to sell her house and will live with my sister. She would like to know what assets she can have invested and how any income will affect her pension, which she is currently receiving as a single person.

Can you please provide me with some simple explanations, as I have to pass it on to my mother who is old and finds she gets confused easily.

A. I assume your mum is on full Age Pension. When she sells her home, she will be assessed by Centrelink under a slightly different set of rules. Your mum will be a single non-home owner so she will be assessed more favourably; however, she now has far more assessable assets, being the proceeds of the sale.
Centrelink will give some grace period for these proceeds but only if your mum is using the money to purchase a new home. As she will be living with your sister, the proceeds will be assessed at the next assessment notice.

Now, what to do with that money? Your mum’s Age Pension will possibly be impacted. Without dollar amounts provided I can’t give a clear indication. But assuming the Age Pension will be impacted, I would suggest that your mum will need to replace that lost pension with some income generated from the proceeds of the home. Also, there are certain products that your mum can invest into that will provide a certainty of income in addition to only being 50% assessed by Centrelink. Their rate of interest is not high but they invest into very secure assets so the risk is extremely low. Also, the extra Age Pension they would probably give your mum will compensate for the low return.

IF you would like to discuss this by phone. you can call me on (02) 9955 9633, email me at , or you can also have a look at my website www.stonebridgews.com.au
Richard Sheargold

Question & answer – Pension bonus

Independent financial adviser, Richard Sheargold, from Stonebridge Wealth Solutions, answers George’s question about working past the pension age.

Q. I turned 65 on 14th of this month. As I wish to continue in the workforce until I am 70, what steps do I need to take with Centrelink?

A. George, you should register with Centrelink ASAP for the Pension Bonus Scheme. This scheme allows you to work past pension age and if you pass the assets/income test you will accumulate a lump sum for when you do retire. However, very rarely will you fully pass the assets/incomes test if you are working. You may pass enough to get a part-pension and you can defer this payment until you retire fully. Out of interest, would be you be interested in a complying pension to gain more age pension in full retirement? If you would like to know more . Hope this helps.
Richard
Stonebridge Wealth Solutions
Phone (02) 9955 9633

Richard’s Q&A

Licensed financial adviser, Richard Sheargold, is available to answer your questions on everything financial. This week he looks at retirement village bonds and licence fees, and reverse mortgages.

Q. Val
I do not fully understand the difference between bonds and licence fees when entering into contracts with retirement villages. Can you explain them? Is a fee of three per cent of the value of the unit per annum for a maximum period of 10
years a normal rate for the licence fee? This would include maintenance but
the pensioner would have to pay municipal rates, water rates, electricity,
phone and gas.

A. From your question I think we are talking about retirement villages as opposed to hostels and nursing homes. The latter two are funded by the Federal Government and have a differing level of care attached to each. A retirement village is usually privately funded and run privately. The following table should help.

A bond is an upfront fee usually charged by hostels and retirement villages. They can differ wildly for retirement villages. The service fee is an ongoing charge that differs between the three forms of residence. For a nursing home and hostel, the daily care fee and the income-tested daily care fee depend on the level of age pension one receives. The ongoing service fee for a retirement village, however, is struck between the provider and the person entering the facility; that is, it is privately run and carries no government funding.

In terms of the costs you’ve quoted, you would really have to ring around to get a competitive price on a retirement village. The type of care and the location and the age of the facility will influence the cost of the upfront (bond) fee and the service fee.

Q. Elaine
We are considering a reverse mortgage because our circumstances have changed. My husband is 74 and has a health problem that has necessitated my having to retire. I’m 66, and now, although we can manage the mortgage and the body corporate and rates, we find it a bit difficult to have any left over for trips and entertainment. or any other major items that may arise.

The idea of a reverse mortgage looks good and I have researched the information and narrowed it down to two providers, but still have this feeling of apprehension.

A. It sounds like you already have debt (a mortgage) and what you want to do is combine this into a reverse mortgage. Firstly, have you approached Centrelink re the forced retirement? If not, it is worth a conversation with them.

On reverse mortgages, they can be very useful to free up some capital value of your home so that you can live more comfortably in retirement. But be warned, they capitalise interest until your death. If you have any children who may inherit your home, then they will inherit your debt as well. That said, my personal belief is that you can’t live on a shoe string budget so that your children will have a nice juicy inheritance. You worked hard for this capital so you could live comfortably on it in retirement.

If you go ahead with the reverse mortgage, make sure you invest the money wisely. Don’t just put it in the bank attracting fees and earning a return above the inflation rate. Always seek professional advice. I am more than happy to discuss this over the phone or in a consultation without any initial fees or charges.

Richard Q&A

This issue, @boutSeniors finance guru, Richard Sheargold, answers questions about superannuation and the complexities of the Age Pension.

Q. Ann:
I have just sold my property in New Zealand to help fund my retirement. I have $150, 000 in a tax-funded Super, S.A superannuation, which will attract 115% tax on withdrawal. I am nearly 70years old, currently fully employed. I have been told that if I can live off the interest from my NZ funds plus the interest from my super fund, I can put the whole of my post-tax pay into my current super before I turn 70, to increase my capital. If I use all of the money to purchase a small unit near the city, I would have only the pension to live on and I am undecided about whether or not to just rent.

A. I assume the 115% taxation is a typo....not even the NZ government would charge 115% taxation. Let’s assume you meant 15%.

If you are to be charged 15% on withdrawal, the money must be coming from a state government super scheme and is what we call unfunded. What you have been told is almost correct; however, you can contribute pre-tax to super not necessary post-tax salary (although you can do this as well). I assume they meant to talk to you about the ‘transition to retirement’ rule. This means that you can start an income stream from your superannuation and contribute your salary pre-tax to super.

This will be particularly beneficial after 1 July 2007 when the government changes the rules so that the income stream from super will be tax free. That means that by contributing (up to your age-based limit of $100,000) to super with your pre-tax salary you are only ever paying 15% taxation. This is a great strategy to grow your wealth and save on tax.

Buying the property in the city is a personal choice and not one I can help you with, I’m afraid. You have to weigh up the benefits of having a better cash flow in retirement and renting or buying and living off the age pension.

Q. Graham:
Coming up 60, I should have about $300,000 in Super, plus have a house valued at $400,000. But, being an ex-UK resident, I have a miserly $50 a week pension from the UK government. Does that disqualify me accessing the Australian Federal Government Pension? I have been in Australia for more than 20 years. If it doesn’t, are there any ‘guesstimates’ as to what it might be worth, bearing in mind I am single.

A. The assets and incomes test for the Age Pension is quite stringent but this doesn’t mean you won’t get at least some. As you have been in Oz for more than 10 years (and assuming you are a permanent resident), your UK pension (as miserly as it is) will count towards your Age Pension incomes test. Also, when you turn your super into an allocated pension, it will be counted towards your assets and incomes test....but only notionally. That is, not all of it will be counted for the incomes test. At $300,000 you should still receive some Age Pension (the cut off is $334,250) and have access to the Pharmaceuticals Benefits Scheme (PBS) which is very important. You will also get your health care card and travel cards.

There are ways to get more Age Pension by investing some of your super into products from which an income is paid and which are only 50% tested for Centrelink purposes. I am happy to discuss this if you can spare the time. Call me on 02 9955 9633 for a chat. One final thing, you say you are 60, the Age Pension won’t start until you are 65, unless you are after a service pension (war pension).

Smart money Q&A

@boutSeniors finance guru, Richard Sheargold, answers a question about Centrelink rules on gifts.

Q. Yvonne
My 83-year-old mother lives with me and my husband in our home. She receives most of the aged pension. She has approx $90,000 in her bank account but wants to lower this amount to around $30,000. She cannot gift the $60,000 to me as it will affect her pension. What options are available to her?  I am an only child and she naturally wants to leave me as much as she can at the end of the day.

A. Centrelink states that an age pensioner can give $30,000 over a rolling five-year period and no more than $10,000 each financial year.
So, your mother can give you $10,000 per financial year for three years and not breach the gifting rules.
My calculations suggest that your Mum is breaching the incomes test (as opposed to the assets test), but only by a few dollars a fortnight. All your mum needs to do is give you $10,000 now and she should then get the full age pension. She could then give a further $10,000 on 1 July (new financial year) to be absolutelycertain. Just one thing, Yvonne, your question leads me to another question: Why isn’t the money invested to earn some long term capital growth and good income? If it is in an ordinary bank account then the interest would be minimal (at best) and the fees high. Centrelink don’t care what the money is invested in, they do their own calculation regardless of what the cash is earning, this is called ‘Deeming’. By having it in the bank alone, you are not beating inflation and therefore it is being eroded away and Centrelink are penalising your Mum regardless of where it is!

Q&A with Richard

Richard answers your most pressing pennies problems. Linda is 59 and wishes to sell her house in two or three years time, giving her son the equity. But she is unsure how this might affect her access to a pension at a later stage. Read our finance guru, Richard’s, answer to this and another query re the effectiveness of private health insurance.

Q. I hope you can enlighten me as I am somewhat confused with literature that I have recently read in a seniors’ paper.

I am 59 in May this year and I am living in a defacto relationship in his house. I have a house nearby that I have a mortgage on of $209,000. My son and his girlfriend live there and pay me rent. It is an interest only mortgage at the moment and I pay about $1293.00 per month.  I wish to let my son take over the payments and let him and his girlfriend stay in the house until they are ready to move.
Can you tell me please if I sell the house in 2-3 years time making me 60 and let my son keep the equity (about $100,000 would this affect my pension at aged 65 and if it does by how much?  I need to know the best line of action to take to make sure that I do not lose out on my pension when I come to retire.

A. There are very strict rules around gifting for Centrelink purposes. One very strict rule is that if you breach the gifting rules (that is, you give away more than $10,000 per financial year or $30,000 over 5 years) then you will be assessed on those (gifted) assets for a period of 5 years. Once that 5 years is up, then you will not be assessed.
Therefore, if you sell your house now you will be able to access the age pension by the time you are 65. Because you were born in May 1947, under normal circumstances you would be entitled to the age pension at 64. The age pension accessibility for women is moving from 60 to 65 however there is a transitional period and your DoB is within this transitional period.
However, the $100,000 in equity won’t affect your pension under the assets test and only marginally for the incomes test anyway. This assumes that you do not have any other assessable assets outside of your home (which you let to your son)…
If you would like further explanations, please email me here

Q. My husband is on the Age Pension and I have just joined this elite group - is there any benefit to keeping up with private health insurance when on the full age pension or is this just an unnecessary expense for us - as you no doubt know it is taking a very large chunk of our pension each month and I have been getting conflicting opinions/advice from different quarters.

A. Health Insurance is one of those fickle issues. Some people feel much safer with it in the knowledge that they can get, for example, the surgeon of their choice if they injure themselves.

In terms of an Age Pensioner having health insurance, well this is a very personal thing. From a pure financial viewpoint, your maximum age pension per couple is $22,391.20 including the pharmaceutical allowance. I don’t know what a health insurance premium for seniors is going to cost but for me (I’m 39) it is very expensive. This really has to burn a hole in your budget. Also, remember that you are entitled to the Pharmaceutical Benefit Scheme (PBS) if on the Age Pension which means you pay a minimal amount for prescriptions. You are entitled to the PBS even if you only earn $1 of Age Pension.

What you have to ask yourself is what will you lose by dropping the insurance? You will lose the choice of a private room in hospital and your choice of doctors and probably quick access to non emergency surgery. You will gain some of your disposable income back that will have to be used on necessary items (living expenses)

The choice is yours, I’m afraid I can only give you the facts, I can not provide professional advice on general insurance (including health insurance). You should contact Centrelink. They may help although they’ll say that they can’t give advice. I would be willing to have a chat with you about it. You can contact by email to arrange a time to talk.


Q. I am a Commonwealth public servant contributing to the PSS Super Scheme. I joined the scheme in 1996, work full-time, and plan on retiring on or after 01 July 2007. At that time, I shall be 69 years old and intending to take a lump sum. I refer to the statement in the latest @boutseniors in which it says that for those over 60, drawing a lump sum or an income from super will be tax free.

Is this really the case with Commonwealth public servants, where there are both taxed and untaxed superannuation elements? I am led to believe that with PSS contributors there is still a decision to be made as to whether or not a lump sum payment will be taxed, with the general feeling being that there may at 01 July 2007 be only be a 10 per cent or so reduction in the amount of tax payable compared to the amount payable right now. Can you enlighten me?

Bob B

A. You enquired re your taxed and untaxed portion of your PSS. You are correct in saying that the untaxed portion will from July next year be taxed at 10 per cent. However, if you have a taxed element in your current super scheme then this should be tax free. I have included a link to the Government’s website explaining the changes with a few questions and answers for you.

Hope this helps, Richard

Q. I have worked 6.5 years over my [retirement] time, and I have registered my intension to work longer so as to get the Government bonus. At the beginning I received a part pension as I was advised by Centrelink but it stopped after approximately 12 months. I was then told that I am still registered for the bonus scheme, so when I retired in September 2005 I was told that the bonus scheme was cancelled for me. Can you advise me or help me with this?

Rudolf S

A. The pension bonus scheme is designed to reward people of pension age (who qualify for an age pension) if they decide to work rather than receive the age pension. The criteria is that you must work at least 960 hours a year and you must register with Centrelink before you start work and notify them when you finish work. They will continue to assess you for the scheme.

If you retire completely then you are assessed under the normal rules for Centrelink. One reason the payments may have stopped is that the Pension Bonus Scheme is only paid for the five years. I would advise you to contact Centrelink for a full explanation and make an appointment with one of their FIS Officers who should be able to help you through the process. Make sure you can prove that you worked at least 960 hours for the whole time you worked.

For further information go to the Centrelink site by clicking here

Richard

Q. Can you advise on details regarding an Australian resident’s continuing entitlement to an age pension when living temporarily in New Zealand?

Malcolm

A.   Australia has a reciprocal agreement with NZ (and most other developed countries) so that where ever you are you can receive your payment. You should contact Centrelink before you go though to notify them that you will be away for a long period of time.

Richard