Ask the Expert: Negotiating pension means test and working partners

Question 1

Hi, my husband has retired and withdrawn his super, with only a small amount in bank. However, he is unable to get a pension of any description due to what I earn and savings we have between us.

Am I better off to cut back my work, and if so, to what dollar amount?

Thanks for any info.

Centrelink will apply an income and asset test and apply whichever provides the lowest benefit. From the sounds of things, you would be income-tested.

To get at least a part age pension a couple needs earn less than $3844.40 a fortnight (or just under $100,000 a year).

Centrelink would take into account your employment income and assume some interest is being earned on your savings. Each dollar of income above $380 reduces the rate of age pension by 25 cents for couples (each).

Tax is another consideration. Even though the age pension is a taxable payment, by itself it doesn’t lead to any applicable income tax.

But if you are earning $45,000-$135,000, you will pay tax and Medicare at a marginal rate of 32 per cent.

Generally, it’s not a good idea financially to cut back work to get more age pension.

Let’s say you cut back. For every $1 you give up in employment income, your husband receives $0.25 age pension. Depending on your situation, you may lose $0.68 ($1 loss in salary less $0.32 saved in tax). So you lose $1 but save $0.58 ($0.25 + $0.32). Overall, a net loss of $0.42.

However, if you are very close to the $100,000 figure, or if you have travel/work costs not included in my calculation above, or you want to cut back for other lifestyle reasons, you should consider it. It will still leave you with less money combined.

Question 2

I believe it is a good idea to be careful of how much you keep in super – considering a senior couple can receive about $58,000 a year in ordinary income (not from super pension stream) and not pay tax. 

What would be the approximate capital to generate that income? And can the couple receive that as well as some super pension payments without paying tax?

Yes, the effective tax-free threshold for seniors is nearly $30,000 each (when taking into account low-income and seniors’ tax offsets). It’s very generous.

The capital needed to generate that income? That depends on whether you are investing in, say, term deposits or shares, as different asset classes will generate different returns.

Let’s say you achieve a 6 per cent annual return. If you had $500,000 each, this would generate interest/dividends of $30,000 each.

However, when you are retired, you may want to start drawing down on your capital and not just live off interest.

Money drawn out from super after 60 is all tax-free and does not have to be added to your tax return. So it is in addition to the above and does not affect it. Again, very generous.

Question 3 

I’ve been a keen follower of your articles in The New Daily on retirement and superannuation. 

We are in a very good position financially and are debt-free, including owning our own rural property outright.

Recently I tried to apply for a Qantas Rewards Credit Card with the Commonwealth Bank and was declined on a paltry $3000 limit. Yet I easily manage my current limit of $10,000 with ING.

Had I known I was going to be treated like a pauper in retirement, I’d have swapped my card before retiring. I’d love to discuss further if that’s possible?

You raise a very good point. I’m hearing this a lot.

Even if you have a good credit history and are otherwise in a strong financial position, financial institutions are not providing lending for seniors in many instances. This includes home loans, personal loans and credit cards.

You can try to contact the institution and ask for a review of the decision. Sometimes when an actual human looks at it, it does get approved.

Otherwise, you can look at a debit card. Or, contact National Seniors Australia for advice – they also offer their own credit card.

Craig Sankey is a licensed financial adviser and head of Technical Services and 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.