In the latest Q&A column, finance expert Nick Bruining addresses a common concern among retirees: does money held in a mortgage offset account impact the Age Pension? The short answer is yes, but the details matter.
How Centrelink Views Offset Accounts
Centrelink treats funds in a mortgage offset account as a financial asset. This means the balance is included in the assets test and may also generate deemed income under the income test. For many pensioners, this can reduce the amount of Age Pension they receive.
However, there are strategies to minimise the impact. For instance, using the offset account to reduce the mortgage balance can lower non-housing assets, which might be beneficial if the home is exempt from the assets test.
Key Considerations
- Assets test: The offset account balance is added to your other assets (excluding the family home). If total assets exceed the threshold, your pension is reduced.
- Income test: Centrelink applies a deeming rate to the offset balance, treating it as generating income even if it doesn't pay interest. This deemed income counts toward the income test.
- Home exemption: Your family home is generally exempt from the assets test, but the offset account is not. So moving money from the offset into the mortgage (redraw) might not help if the redraw is accessible, as it may still be considered an asset.
Other Reader Questions
Bruining also fields questions on downsizing contributions to superannuation, the impact of receiving an inheritance, and how to manage pension entitlements when one partner moves into aged care.
Downsizer Contributions
Readers ask about the downsizer contribution scheme, which allows people aged 55 and over to contribute up to $300,000 from the sale of their home into super. Bruining clarifies that this does not count toward the usual contribution caps and can be done even if you are not working.
Inheritance and Pension
Receiving an inheritance can affect your pension. Bruining advises that if the inheritance is received as cash, it becomes a financial asset and will be assessed. However, if it is used to pay down debt or make home improvements, the impact may be reduced.
Expert Tips
Bruining recommends speaking with a financial adviser who specialises in Centrelink rules, as individual circumstances vary. He also notes that the rules are complex and subject to change, so staying informed is crucial.
For those concerned about the Age Pension, careful planning around asset allocation and timing of financial decisions can help maximise entitlements while still meeting retirement goals.
