- Question 1. I was widowed in 2018. I chose to close the super account and put the money into a deeming account earning 5 per cent. Now the deeming rate is 2.25 per cent on amount over $56,400. My total deeming account is $900,000. I do not receive a pension but do get benefits of reduced rates etc.Recently, returns from super are low so did I do the right thing going into deeming which does not have fees like the financial advisor had? It is certainly less complicated for me not having to deal with Centrelink and advisor. My income is only $5000 per three months. I own my own home and have no debts. Is this the best option for me? Thank you for your advice.
Deeming rates are used by Centrelink. It’s the assumed interest you earn on your financial accounts.
Note that most deeming or pensioner bank accounts pay less than the Centrelink deeming rates. Therefore, you may need to shop around to receive a high-interest account.
I generally would have advised to leave funds in super as you can draw down the funds easily, all earnings and payments are tax free in pension phase, and you can invest in a large range of investments.
You seem concerned with poor ‘super’ returns. Super is not an investment, it’s a tax structure.
Within super you can invest nearly anywhere. So, you can have the money invested in some very conservative options.
It’s also important to point out that you do not need a financial adviser for your super. You can keep things simple, especially if investing in an industry fund. And many of these funds offer simple financial advice for their members at no addition fee.
Finally, you seem to be living off your interest only. Many people are scared to start drawing down on their capital for fear of running out of money. This was noted in the Retirement Income Review.
However, your quality of life in retirement could be greatly increased if you started drawing down on some of your funds.
You don’t have to draw down on all of it, but don’t be afraid to enjoy your retirement by spending some money.
- Question 2. My friend has a home valued at 4.5 million but gets the aged pension while I have a home worth 1.4 million and other assets worth 1.5 million so do not qualify for aged pension. Why is this so?
Have you heard the expression ‘it’s all politics’?
Way back in 1985 means testing (income and asset tests) were introduced into Australia for the purpose of receiving various income support payments, including the age pension.
At that time a government report recommended the ‘principal home’ should be included in the asset test.
However, the government at the time, fearing a scare campaign, rejected this proposal and the home has never been included in the asset test since.
The principal home in Australia receives many Centrelink and tax concessions.
There are good reasons why the home, or at least part of the home, should be included in the assets test, an article by Graham Hand has provided 10 of them. To get an idea how contentious the debate is you can view the comments after the above mentioned article.
There is a strong argument that all assets should be treated the same on fairness grounds – however, with more than two-thirds of adult Australians either owning or buying a home, it would take a brave government to change this.
- 3. If you own a home and you are on Jobseeker, can you rent a room (to pay rates and body corporate fees) and does this income affect your payment from Centrelink? What is the same situation if you receive a pension?
Income from boarders and lodgers is counted by Centrelink, whether you are on Jobseeker, the age pension or any other income support payment.
However, the full amount will not be counted. Below is a guide on how this would be assessed.
Also note that if the room is rented to an immediate family member, the income that is received from the rooms rented is not treated as income for social security purposes.
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.
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