How to “HIDE MONEY” to Improve Age Pension
9 Ways to Legally HIDE MONEY to Get More Age Pension
In Australia Age Pension benefit is the ultimate income stream, it is reliable, secure, if your personal assets are correctly structured and looked after, Age Pension can be virtually a guaranteed income stream.
But sometimes it is easier said than done, as you might not be eligible for Age Pension either under Income Test or Assets Test. It all depends on your Assessable Assets and in what form your current income is being paid to you.
So here you are, getting ready for the exciting day, when you can finally say, “I can retire now and where is my Age Pension?”, and then to your horror, you find out you have too much savings.
My very first recommendation is: organise your money before your first visit to the Centrelink office or completing your application online. Prepare your assets in advance, so you know your entitlement before Centrelink even comes back to you with the reply. It is so much easier to deal with Centrelink when you know the application is final and you do not have to go through changes, updates, fixing mistakes, reshuffling of money etc.
So what can you do if you’ve calculated that you do have too much savings, but your goal is to get at least part Age Pension, if for no other reason, but at least to have access to the Health Care Card with all its benefits and discounts.
Obviously, the easiest way to reduce your assets and your savings under Assets Test is just simply spend it. But spending it for the sake of getting rid of the money is pretty silly, not to mention, that Centrelink is checking your last 5-year transaction history.
If you are to spend your money, do it in the way that it will provide you with some kind of a benefit long-term, and helps with Age Pension eligibility at the same time.
And now, let’s discuss 9 ways how you can legally hide your assets, to improve your Age Pension position
You can give away a maximum of $10,000 in one financial year up to $30,000 within a period of 5 years.
But what exactly is gifting for Centrelink purpose?
- If you sell an investment or you transfer your income or your asset to another person or another party and you received less or nothing in return and
- you have done it within the limits of a maximum of $10,000 in one financial year and up to $30,000 within a period of 5 financial years – it is gifting,
- If you exceeded the limit, this is regarded as asset deprivation and the balance above the allowable limit will be treated as a deprived asset & will be counted under Income and Asset Test for the period of 5 years, as if you continue holding this asset.
Examples of gifting:
- you gave your daughter $10,000 to help her with her home renovation.
- you sold your car to your niece for $5,000, while the market value of the car is $20,000. Then it is estimated that you have given away $15,000 of your assets.
- Giving away a car of $50,000 value for no payment to you, is a deprivation of assets and will require a period of 5 years to disappear as your asset and not being counted under Asset Test.
2. Home exemption
Home is just about the only asset that regardless of its value, is fully exempt from the Assets Test, up to the first 2 hectares of land it is on. Therefore, if you really have lots of assets, and you really want a part Age Pension, you can buy yourself a new, bigger, better and more expensive home. That is one of the easiest solutions, but whether it is the best solution for your overall retirement income needs is another matter. I would recommend reviewing all other solutions first, before jumping into such an expensive exercise as selling your existing home an buying a new one.
If you are renting and have lots in your super or in any other form of investments, then it makes more sense to buy a home, but it needs to be calculated based on your personal situation and your personal income needs as well as your future financial plans.
So before you jump into buying a new home, get the specialized advice to make sure you are not rushing into anything, but actually make an informed decision for your future retirement years.
3. Renovate your home
As mentioned before, your home is the only real exempt asset, so if you have spare cash, you could invest some back into your existing home. Any money spent to improve your home or repair it, will become part of its value, therefore exempt from Centrelink tests.
4. Repay debt against exempt assets – pay off your home loan
The shocking statistics is that in 2019 over 37% of retirees aged 65 – 74, and 28% of those above age of 74, had a mortgage against their family home. And those numbers are only growing.
If you are one of those retirees, and you have savings on the side, you should really consider repaying your mortgage first.
The reason is that your mortgage continues to charge you interest (your loss) and you have to meet ongoing repayments.
But at the same time, your savings attract deeming rates or any other Income Test ruling, depending on where money is invested, is subject to Assets Test, therefore your Age Pension benefit could be reduced. This is a double whammy loss for you.
If this is you, please, please get advice.
5. Prepay your expenses
This is a strategy used by many people at the end of each financial year, to prepay some of tax-deductible expenses for the upcoming year and claiming the tax deduction in the current year.
You can do exactly the same with your expenses and prepay for example:
- general insurances (home, car, caravans, boats), etc
- private health insurance – paying the annual premium will also attract a solid discount, so it should be a double benefit for you,
- holidays – plan your holidays in advance and prepay them. Not only you might negotiate a good discount, but money will no longer be counted for Age Pension tests, as long as the money has been deducted from your bank account and you can present the invoice to Centrelink if asked.
Just think outside the box
6. Funeral bonds within limits or prepayment of funeral expenses
We all know that death and taxes are the only guaranteed things in life. So if you know that death is inevitable, it only makes sense to either prepay your funeral of invest into funeral bonds.
You can invest up to $13,500 per person, or as a couple into a Funeral Bond. You can have a bond each, virtually doubling the value or the exempt asset up to $27,000, but if you invest above the limit of $13,500 into a joint bond, it will not be exempt.
In contrast, there is no limit to prepay your funeral expenses. For those expenses to qualify, there must be a contract between you and the funeral director, statement that the service has been fully paid for and payment is not refundable.
You must remember though, that both methods will prevent you from having access to those money ever in the future, both are non-refundable, so get advice to confirm that this is the best option.
7. Contribute to younger spouse super
If there is an age difference between partners, and you are arriving at the Age Pension age, while your partner is several years away, one of the best strategies is to “hide” money in a younger spouse super. Until your younger partner becomes eligible to apply for Age Pension based on age, the balance of the super will be fully exempt from any test.
It is best to plan this many years in advance, but unfortunately that rarely happens, and often I see clients just before applying for Age Pension asking for help what can be done.
There are still ways to “reshuffle” superannuation money between partners, but you need to know superannuation rules of accessing funds from super, contributing to super, you need to know limits not to breach them, which can become complicated. You need to consider possible cost in such a change. Also, money will return to a 15% superannuation tax environment as opposed to a tax-free pension environment, and another major issue to consider that money would go back to being “preserved” within superannuation fund, and the only way to have access to money again is when the younger spouse meets conditions of release.
So this strategy is great, as long as you take appropriate precautionary steps to have sufficient emergency funds and still benefit from maximised Age Pension.
8. Purchase a specific type of annuity
This is another fantastic idea to legally hide your assets from Centrelink, but in order to know what type of investment would work wonders for improving your Age Pension eligibility, you need to know which test affects you the most – Income Test or Asset Test.
When you know what problem you are dealing with, then you can apply the correct measures to maximise the benefit and legally reduce either your income or asset.
A lifetime annuity may immediately increase your Age Pension because only a portion of your investment is counted under the assets test. Any benefit will depend on whether you are assessed under the assets or income test.
9. Special Disability Trusts
This is a special type of trust for families to place money for the long-term care and accommodation needs for a person with a severe disability and funds could be exempt from Assets Test – subject to specific rules and limits. As this topic is extremally personal and not for a general discussion, if you require information or assistance, please contact me directly.
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