Retirees receiving a part or full age pension need to consider carefully whether or not to take advantage of the 2017 budget proposal allowing the proceeds of a property sale for downsizing purposes to be contributed to their SMSF due to the assets test rules, a chartered accounting firm partner has said.
HLB Mann Judd Sydney wealth management partner Jonathan Philpot said: “[These individuals] would really have to look at whether that is the right thing to do and that’s all because under the rules your home is exempt from the assets test, whereas your super is included.”
Philpot cited the taper rate now being employed as part of the age pension assets test as a major hurdle that could leave individuals implementing this strategy in a worse financial position.
“The new taper rate, which only commenced in January this year, it’s now $3 for every $1000 above the lower threshold where it used to be $1.50 for every $1000,” he noted.
“So over a year that’s $78 in pension payments for every $1000 above the lower threshold that you’re losing in pension payments.”
To illustrate the point, he used an example of a couple currently owning their own home with $500,000 in assets counting toward the age pension, where if they sold their home and contributed the allowable $300,000 proceeds amount into their superannuation fund, they would be $23,400 a year worse off in regard to their age pension payments.
“That’s a sizeable cut to the family cash flow by implementing this strategy,” he said.
In this situation, to make the strategy produce a positive outcome, the $300,000 would have to be invested and earn an after-tax return greater than 7.8 per cent a year, he said.
He added that ironically retirees who sold the family home were often looking to improve their existing cash-flow situation, but as demonstrated in the scenario given, that most likely would not be the case.
“I think overall the government announcement with the selldown will help boost retirement savings for people who are in the position to put more into super, but if they are already receiving this part or full age pension, then under the current rules that favour assets being held in your home rather than super, they probably wouldn’t be in a better financial position with it,” he said.
