The recent Federal budget contained some incentives for older Australians to sell their homes and downsize. Specifically, people over 65, who were selling their home that they had owned for 10 years or longer, will be able to put $300,000 each into their superannuation. Previous restrictions that would prevent this, will not apply.
However, it remains to be seen how attractive this is, especially to people who may lose all or part of the age pension in the process. By freeing up capital in this way, it moves from the non-means testable area (your home), into the area where it becomes means testable. In the process, all or part of your age pension may be affected.
In our experience, people often decide not to downsize when faced with this loss of pension. However, this action is not logical and puts too much emphasis on the age pension. After all, the age pension is nothing but a source of income, and it is not inherently better than an alternative source of income.
Consider the following:
1. The money that is freed up by downsizing can provide an income stream, and the capital itself can be spent if necessary.
2. More is better than less. If you have more investible funds, you will always be in a better position than if you have less.
3. The age pension will always be there. If disaster befalls, and your new-found funds are lost (as distinct from being given away), you will always be able to re-apply for the pension.
4. The Health card is one of the most valuable benefits of receiving an age pension, and people sometimes believe that loss of age pension will mean loss of health card. This is usually not the case, as the Commonwealth Seniors’ health Card is available to people of pension age, who do not qualify for a pension. Eligibility for the Seniors’ Health card depends on adjusted taxable income – and the limits are quite high, especially when taking account of the fact that superannuation benefits to over 60’s is tax free.