Understanding pension penalties
Illustration: Rocco Fazzari
I turned 65 in 2005 and bought a term allocated pension (TAP) for $150,000. The government encouraged investors by allowing a 50 per cent reduction in the assets test of the amount invested, but a short time later it changed the rules and I went from the assets test to the income test. Because of the global financial crisis I have been able to take an amount below what the rules specify. As soon as that concession ends I will be forced to take ever-increasing amounts and will lose half of my Centrelink payments in excess of the non-assessable amount. Is there any way to change to an allocated pension or to withdraw my money entirely? Centrelink says penalties, if any, would be minimal as I was on the assets test for such a short time; the ATO says it is not up to it; and my TAP provider says I cannot be released from the contract.
There are only very limited circumstances in which a pre-September 2007 complying income stream can be commuted, and they do not appear to apply in your case - financial hardship is not an exemption. The only realistic option is to investigate rolling the money over to another complying income stream. If you do this, you will probably lose the 50 per cent asset- test exemption, but the strategy may be worthwhile because it could result in a more favourable income-test assessment. Expert advice is important because there is a range of factors to consider. Just make sure you understand all the implications before making any changes.
I read in a magazine article that $416 is the threshold on interest income for a child under 16 who does not have a tax-file number and quotes their birth date instead. My understanding is that any child under 18 cannot claim the low income tax offset against unearned income. Could you clarify this as the ATO site is a bit hard to follow.
You are correct - this is why it is important for parents and grandparents to investigate alternative investment vehicles, such as investment bonds, when the balance of the child's savings builds up.
My wife will retire soon with a small superannuation fund of $70,000. She rang the fund to get advice but it was not much help. She wants low-cost management fees, to use some of the super to pay debt and the rest to provide a regular income. We own our home but don't have much other income. We would appreciate your advice on suitable funds and how to obtain the best income stream.
If the super balance of $70,000 represents the bulk of your family assets, there is little point in keeping it in super. Your best option may well be to withdraw it, pay off your debts, and then invest the balance in a high-interest term deposit. Of course, if you have other assets you may need to seek advice, because it is important that, as a couple, you have a strategy that works for both of you.
I am a 56-year-old single woman, own my own home and have no debt. I have $150,000 in a super fund, work part-time and salary-sacrifice to the maximum allowed. I also have a TTR (transition to retirement) pension fund of $450,000, from which I draw monthly living expenses. I have $800,000 on term deposit. As interest rates have been falling to less than 5 per cent, would I be better investing this money elsewhere or should I put more money into my super? I have also been considering buying an investment property to rent.
There are two issues here - the first is tax minimisation and the second is asset allocation. I certainly believe you should move as much as you can into superannuation to save tax, but your overall asset mix is something that should be decided in consultation with your adviser and it should match your goals and your risk profile. You may well have another 40 years of living ahead, so you need a percentage of assets in growth investments. Only you can decide whether an investment property will give better long-term returns than shares - I must confess that I prefer the latter.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature. Readers should seek their own professional advice before making decisions. Email email@example.com
Each week financial advisor and international best selling author, Noel Whittaker, answers your questions. Ask an Expert