How our homes rank in the Centrelink Pension Wealth Test

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Question 1: Why do most financial advisors suggest that despite low interest rates, we should pay off as much of our mortgage as possible? My take on this advice is that we shouldn’t pay back interest if it’s going up.

I’m not sure “most” financial advisors would give that advice.

I would say that when interest rates are falling, keep your mortgage payments flat and not drop to ensure you stay ahead. And when interest rates go up, you have a built-in buffer.

Many people would be in this situation right now. So hopefully anyone with a mortgage for more than, say, three years will be well ahead of their mortgage payments and won’t be forced to find extra cash flow when interest rates rise.

I gave some detailed information on whether you should pay off your mortgage faster or invest more in Super in a recent article, and it depends on a number of goals and circumstances.

Question 2: If my husband were to be placed on a disability pension and I am already on a disability pension, how will we be affected in terms of assets or income if only my husband has a $400,000 pension? Thank you Jenny

Hello Jenny,

Since you both receive disability pensions, I assume that you are below old-age pension age.

When you reach old-age pension age, you have the choice of moving to old-age pension or staying on disability pension.

Most people are moving into old-age pension as it means they no longer need to complete medical checks and have more flexibility when it comes to accepting part-time work or traveling outside of Australia.

Whether old-age pension or disability allowance, the level of payments, income and asset checks are the same.

Therefore, if you have not yet reached old-age pension age, all funds held in Super are exempt from the income and wealth test until your husband reaches old-age pension age.

If you find you need more income, your husband could try to deduct some of his supersalary to top up your disability benefit payments, while leaving most of it in the supersalary so he doesn’t fall under the Centrelink wealth test.

Question 3: Hi Craig, In response to your answer, I have a question about what counts as an asset. We are of retirement age and recently bought a lower value home outright. We are committed to building a home that will be of greater value and have arranged our finances to pay for it.

Once the house is built it will be our home and we plan to sell the current one and pay back in super. We are currently not receiving an old age pension and are living on a small stream of income and a UK State Pension amount that will not increase.

We were recently told that our build will likely take around two years, much longer than originally recommended. Our assets include the amount of the super pension, the property, the amount deposited in the bank for advance payments and little more. Net worth is around $890,000.

Do you know someone who managed to get a partial old-age pension under these circumstances? Could it be possible once we start making the down payments? Or do we have to wait until our construction plan works and we have less liquid funds? Thanks and best regards, Jan

Hello Jan,

There must be an apartment on the property for it to be considered a primary residence. And if you have more than one home, your primary residence is where you spend most of your time. Your primary residence is then exempt from the Centrelink asset test.

Therefore, you must wait until you are ready to move into the new home before Centrelink counts it as your principal residence and exempts it from the property test. Your existing property should currently be exempt from the asset test.

As a member of a couple and as a homeowner, you can still have up to $901,500 in wealth and receive a small partial retirement benefit.

Craig Sankey is a Licensed Financial Advisor and Head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The answers provided are general in nature and while prompted by the questions asked, they have been prepared without considering all of your goals, financial situation or needs.

Before relying on any information, please make sure that you consider the appropriateness of the information for your objectives, financial situation, or needs. To the extent permitted by law, IFS and its agents accept no responsibility for errors or omissions.

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