2019-05-01 Money Australia

C

heryl, after notifying the Department

of Human Services of the inheritance

within 14 days, a reassessment of your

assets and income will be made to deter-

mine your new age pension entitlement.

It will depend on your assets, including

the inheritance, a deemed level of income

on financial assets including cash, and any

income generated from your work. You

would be assessed under both an assets

and income test, and whichever one results

in the lesser Centrelink benefit would apply.

As a single non-homeowner, if your

assessable assets were less than

$465,500 and your income less than

$172 a fortnight you could anticipate

no reduction in your benefits and a

maximum age pension entitlement.

Alternatively, if an inheritance sees

your assessed assets exceed $774,250

and your income exceed $2024.40 a

fortnight, you would no longer be entitled

to the age pension. The income test limit

may be higher when you are eligible for

rent assistance or the work bonus.

While the Department of Human

Services deems your cash accounts

to earn 1.75% on the first $51,200 and

3.25% on the balance, for the purposes

of determining your age pension entitle-

ment this treatment has no bearing on,

nor in any way limits, the amount you

can seek to earn on your capital. In this

regard, maximising your return within

the level of risk you are willing to take

is beneficial to your financial position.

In relation to increasing the earnings on

the $200,000, given you have money

set aside for your big trip and as such

do not require access to those funds for

12 months but would like to utilise them

to supplement your rent on your return,

it would seem appropriate to consider

cash and term deposits.

Investment in growth assets, including

Australian and international shares and

property, would seem inappropriate,

as the increased potential return would

come at significant capital risk over

such a short time frame.

The Suncorp 55 Plus account appears

competitive at 2.4% for at-call cash

accounts at this time. Only accounts with

bonus interest terms may offer a higher

return. Alternatively, if you were com-

fortable not accessing capital for the full

period of investment, you could consider

a 12-month term deposit, for which you

may earn perhaps 2.7% to 2.75% through

providers such as ING and AMP. Seeking

returns greater than this would see you

taking on significant capital risk.

On your return from your trip, we would

evaluate a more growth-focused asset

allocation to assist you to achieve higher

returns over the longer term. We would

consider a mix of diversified bond, prop-

erty and equity funds complemented by

some direct listed exposure to Australian

shares and other listed instruments.

Consider cash and

term deposits

CHRIS SMITH

Chris is a financial planner and partner of Visis Private Wealth

Low risk

but low

return

STEVE MICKENBECKER

Steve is the group executive, financial services, at

research house Canstar

S

avings accounts are at the low-risk end of the

spectrum. Provided you place your savings with

an approved deposit-taking institution and keep your

total deposits below $250,000, your funds are guar-

anteed by the federal government. Unfortunately,

this security comes with a low interest rate,

reflecting the current low-rate environment.

There are three common savings accounts

available, each having its own advantages and

disadvantages:

• Online savers allow access to your money at any
  time but generally have low base rates. The highest
  base rate on Canstar’s website is 2.2%. A better inter-
  est rate can be achieved by moving money around
  every four months or so to keep earning introductory
  bonuses. This can lift your rate to 3.05%, but it
  needs active management.


• Bonus savings accounts have an ongoing bonus
  rate on top of a generally low base rate (from zero).
  You can access your money any time, but a withdraw-
  al often means losing the month’s interest. So com-
  pare bonus conditions as well as rates. Currently
  bonus savings accounts go up to 2.9%.


• Term deposits can be suitable for people who are
  able to lock money away for a set period. Canstar’s
  maximum 12-month rate is currently 2.85%, and with
  a $200,000 deposit negotiation might be possible.
  To achieve a reasonable interest rate you may have
  to micro-manage your savings as never before. You
  also have to choose the right bank and right account,
  which is where a comparison site such as Canstar
  can save you “shoe leather”.

How the age pension can be impacted

A

one-off lumpsumpaymentfroman
inheritanceis exemptfromtheCentrelink
income test, butit’swhatCheryldoeswiththe
inheritance thatmayaffectheragepension.
If she puts themoneyintoa bankaccount,
we will treat it asa financialassetanddeem
it to earn income,whichwillbeassessed
under the incometest.
The first $51,200ofCheryl’sfinancial

assetswillbedeemedattherateof1.75%,

andtheremainingamountover$51,200will

bedeemedtoearn3.25%.Thesearethe

ratesfora singleperson.

If hertotalincomeexceedstheincome

test-freeareaof$172a fortnightfora single

person,herpensionmaybereduced.

If Cherylis a singlenon-homeowner

receivingtheagepension,shecanhaveup

to$465,500worthofassetsbeforethey

starttoreduceherpensionundertheassets

test.Thetaperratewillreduceherpension

by$3perfortnightforevery$1000ofassets

HANK JONGEN

Hank is a general

manager at the Department

of Human Services

above this limit. Should Cheryl use this

money to purchase a home to live in, the

value of that home won’t be counted as an

asset, as the principal home is exempt from

the assets test.

It’s important that Cheryl tells Centrelink

within 14 days of a change in her circumstanc-

es, and she can use the payment and service

finder tool on our website (humanservices.

gov.au) to estimate her age pension payment

rate. I also encourage Cheryl to make an

appointment with one of our financial

information service officers.