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The “New” Government Pensions Loans Scheme – Do I Need Extra Income?

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It’s time to review the Pension Loans Scheme (PLS), how it operates, how it can assist either long term or short term and tell you about some new features.

Why did I think it is worthwhile revisiting the Pensions Loans Scheme (PLS)?

A couple of reasons.

1. The Government announced a couple of changes to the scheme in the May budget.

2. I have been receiving questions on how the PLS operates.

3. The increasing value in age pensioners homes.

Let us have a closer look at point 3 first.

Domain’s December 2020 quarterly house price report shows the average price for a home in Australia in December 2020 was $852,940. Melbourne was very close to $1 million, and in Sydney, the average price was more than $1.2 million.

In the first 5 months of this year, the average increase in property across all capital cities was close to 10%, meaning all the average values that I mentioned in the last paragraph have all increased by close to 10%.

So, how does this affect the average age pensioner in Australia? It does not; however, with the increase in the value of their home and the land that it is built on, pensioners may see increases in their annual home insurance and rates.

The government is very keen for retirees whose cash reserves maybe dwindling to access the increased equity in their home to improve their lifestyle, increasing their spending and reducing their reliance on the age pension, which all helps the economy.

The ability to sell your home and buy a smaller property and deposit the difference into superannuation – Downsizer Contributions – is one measure.
However, speaking to age pensioners there appears to be two issues with this measure which they are not all that keen on. Firstly, many have lived in their current home for a long time and are very comfortable where they live. It is a home full of memories. Secondly, selling and moving to a smaller home, and having more money in superannuation, can reduce their age pension, which they do not feel comfortable about.

Let us now look at points 1 and 2.

What does the PLS have to offer? The PLS provides the ability to access the equity in your home, increasing the amount of age pension you receive on a fortnightly basis to an amount of up 150% of the full age pension. For self-funded retirees who need to increase their income, they too can also access the PLS and apply for a fortnightly payment of up to 150% of the full age pension.

In practical terms what does this mean? As an example, a single age pensioner on the full age pension of $952.70 could access the equity in their home and receive up to an additional $476.35 per for fortnight. For a single self-funded retiree, they could access the equity in their home and receive up to $1,429.05 per fortnight.

How much of the equity in my home can I access?

This depends on your age, the value of your property, and how much of the equity you wish to maintain. To explain the process in simple terms I will use an example.

A single 75-year-old in receipt of the full age pension, who has a home valued at $850,000, who would like to retain equity in their home of $350,000. The following formula is the basis for the maximum loan amount:

$3,750 (age component value)* x (($850,000 – $350,000)) / $10,000 = $50,000. This is the maximum amount of the loan.

In practical terms, it means that our single age pensioner could receive an additional $476.35 per fortnight at the current interest rate payable of 4.5% on the loan for approximately 4 years.

This maximum loan amount can be recalculated and increased on a yearly basis, based on an increase in the value of the home and the increase in the pensioner’s age.
The payments made under the PLS are not taxable and are not assessable by Centrelink under the income test.

What are the changes to the scheme that the government announced in the May budget?

1. A person can now apply for a lump sum payment up to the maximum annual amount applicable to their situation. In the example above, this would mean that our single age pensioner could apply for a lump sum on a yearly basis totalling $12,385.10.

The downside to this advance lump sum is that it effectively reduces the extra fortnightly loan payments that they were receiving, after lump amount is paid and the total reaches $12,385.10 for the year to zero dollars.

2. The second announcement was the introduction of a ‘No Negative Equity Guarantee’, meaning that borrowers under the PLS, or their estate, cannot owe more than the value of their property.

I have provided a lot of information that is quite complex to understand. What I would like to point out is that the PLS gives age pensioners and self-funded retirees an extra avenue of accessing the equity in their home with a very credible lender “the Government” at a competitive interest rate of 4.5%.

Before you rush out and sign up for a loan under the PLS, make sure you understand how the scheme works in its entirety, and the pros and cons with regards to your own circumstances. The best way to do this is to speak with a professional.

*The age component value is based on a person’s age and will increase as a person grows older.

 

 

Source: Mark Teale | Centrepoint Alliance

Time for a quick check-up – Superannuation & Insurance

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Superannuation is not something we usually give a great deal of thought to, particularly if retirement is 10 years or more away. But perhaps it is worth investing a few moments to consider some recent changes, particularly if you have one or more super accounts that have become inactive.

 

When the government talks about a super account being inactive, they are generally referring to an account that has not received contributions or rollovers from another super fund in the previous 16 months. That is an important number to keep in mind.

 

If you have a close look at your super account statement, you may notice that insurance premiums are being deducted. This happens because many superannuation funds are required to provide a level of default life insurance cover.

 

In last year’s Federal Budget, the government announced changes to super that were designed to stop the erosion of super balances by fees, charges and unnecessary insurance premiums.

 

One important change that is due to take effect from 1 July 2019 relates to insurance for inactive account holders.

 

Where a member of a superannuation fund has an inactive account, that is, the account has not received contributions or rollovers from other super funds within the previous 16 months, the fund will be prevented from offering or maintaining insurance for the member.

 

This means that super fund members may lose valuable insurance protection.

 

The legislation places some onerous conditions on trustees of super funds.

 

Firstly, where insurance is already in place within a choice or MySuper product, the trustees of the fund are required to identify, as at 1 April 2019, member accounts that have been inactive for a period of more than 6 months. They must write to each member before 1 May 2019 advising the insurance will be discontinued from 1 July 2019, but that cover may be continued if the member wishes, and setting out the manner in which the member can opt-in to retain their insurance.

Secondly, trustees must inform members of their fund on an ongoing basis when an account has been inactive for nine months, then again at 12 months and 15 months.  

 

If a member wishes to maintain their insurance cover within their super fund, they will need to take proactive steps to ensure it is retained. This may be done by making a contribution, rolling over a benefit from another super fund, or simply instructing the super fund, in writing, that they wish to retain their insurance cover. This is referred to as ‘opting-in’. Insurance is vitally important for many people.

 

It is worth taking time to review the various super accounts you have with particular reference to the insurance that you may have. If you no longer need the insurance, then asking your super fund to cancel it may help prevent the erosion of your super balance. However, if you need the insurance, taking steps to ensure it is maintained.

 

Source:  Peter Kelly | Centrepoint Alliance

Carers – are you eligible for a government payment?

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As we age our bodies and minds start to become a little less stronger. We will find that we are relying on care provided by relatives, our partners or by the government.

The role of the individual carer is extremely important and in many cases, a selfless act for a person that they love.

There are 2.7 million unpaid carers in Australia of which approximately 856,000 are primary carers, those who provide most of the ongoing informal assistance to a person. Two-thirds of these primary carers are females with an average age of 55.

To assist these unpaid carers, the government does offer three payments. These payments will depend on the carer’s circumstances and the level of care that they are providing.

The first of these payments is the Carer Payment. This payment is similar to the age pension and is subject to the same income and assets test that is applicable to the age pension. However, there is also an income and assets test which is applied to the care receiver and if the care receiver’s income and assets are above these levels then no Carer Payment can be made to the carer. The current maximum Carer Payment for a single person is $916.30 per fortnight.

The second payment is the Carer Allowance. This is a fortnightly payment, currently $129.80 which can be paid in addition to the Carer payment, is not subject to an assets test but is subject to an annual adjusted taxable income threshold of $250,000.

The third payment is the Carer Supplement which is an annual lump sum payment of $600 paid to assist with the costs of caring for a person with a disability or a medical condition. You are entitled to this payment if you are receiving either the Carer Payment or the Carer Allowance.

All these payments are subject to the provision of medical evidence to show that the care receiver does have a severe disability, medical condition or is very frail in their old age and do require substantial daily care.

This is a complex area, so if you feel that in your current situation you are providing a substantial level of care for a parent, partner or any person, you may qualify for one or all three payments, do not hesitate talk to someone who is able to help and provide direction.

Source: Mark Teale | Centrepoint Alliance

Federal Budget Overview – 2019

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On 2 April 2019, The Hon Josh Frydenberg delivered his first Budget as Federal Treasurer.

The good news is that the Budget has forecasted a return to surplus of around $7.1bn in 2019-20. Australian will earn more than it spends!

Ten million low and middle-income earners are the winners as they will receive an immediate tax cut, which is being delivered by way of an increase in the Low and Middle-Income Tax Offset (LMITO). The increase will be available for the next three years and will see the LIMITO more than double. An amount of $1,080 for Australians with taxable income of between $48,000 and $90,000. A more modest offset is available for those on lower incomes, and the offset cuts out when taxable income reaches $126,000.

It has been estimated that by 2024, 94% of Australians will have a marginal tax rate of 30% or less.

By contrast, the top 5% of income earners will pay a third of all taxes collected.

Australians who receive a range of government income support benefits will receive a one-off payment of $75 for singles, and $125 for couples, to help with their energy bills. This payment is planned to be made before 30 June 2019.

Superannuation was largely untouched in this year’s Budget, however, from 1 July 2020, people aged 65 and 66 will be able to make super contributions without having to meet the work test and the maximum age spouse contributions can be made is to be extended from 69 to 74.

Infrastructure and health received injections of cash.

Expect to see the skyline silhouetted with cranes. The Government has announced further significant spending on roads, rails, airports and the like.

Included in the Budget was an allocation of $500m to get cars off the roads by building more commuter car parks, therefore encouraging people to travel by train. For anyone who tries to navigate capital city peak hour traffic, this will be welcome news.

Small to medium businesses will benefit from the planned increase in the instant asset write-off for purchases of up to $30,000.

Older Australians have not been ignored with an additional 10,000 aged care home care packages being announced and a further 13,500 residential aged care places being made available. With the aged care system being strained with the increasing demand for services and support this is welcome news but sadly is nowhere near enough.

Additional funding has also been directed towards the delivery of primary and frontline health care.

Legislation will need to be passed in order for the changes to be implemented.

 

Source:  Peter Kelly | Centrepoint Alliance

Change for good or change for the sake of change?

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With the significant swing against the Coalition at the October by-election in the Sydney seat of Wentworth, we turn our attention to next year’s Federal Election, expected to be held in May 2019.

If present trends are an indication of the future, we will see a change of government with the Australian Labor Party (ALP) taking the reins of power in Canberra.

So, what will a change of government mean for our super?

Hardly a month goes by without someone proposing that we change some aspect of the superannuation system. It is no wonder that the average super fund member is so disengaged with their super.

In July 2017, we saw the most significant changes to superannuation in the previous 10 years. Some changes were good, and others not so good, depending on your perspective.

Some of the initiatives the ALP has previously expressed opposition to may provide hints to changes that might be made. These include:

  1. Reducing the annual limit (cap) for non-concessional contributions from $100,000 to $75,000 per annum.
  2. Reducing the income threshold, at which the additional 15% tax becomes payable on concessional contributions from $250,000 to $200,000. Interestingly, the ALP originally proposed reducing the threshold from $300,000 to $250,000, but when the Coalition government reduced it to $250,000, the Opposition responded by announcing a reduction to $200,000.
  3. Opposition to the ability of people, with less than $500,000, in super to carry forward the unused portion of their concessional contribution cap.
  4. The ability for people to claim a tax deduction for their personal superannuation contributions.

On the positive side, the ALP recently announced plans to give women a better chance to achieve equality in superannuation by requiring superannuation guarantee contributions (currently 9.5% of salary) to continue to be paid while on government paid maternity leave. This would also be extended to men, who take paid paternity leave following the birth of a child.

Currently, employers are not required to make superannuation guarantee contributions for employees earning less than $450 per month. However, the ALP proposes to remove the minimum income threshold before superannuation guarantee contributions become payable. Unfortunately, this may lead to very small amounts being contributed to super only to be swallowed up in fees and charges by super funds and otherwise being lost to the members.

The Opposition has also made some other significant tax-related announcements, including the controversial plan to eliminate the cash refunds of excess franking credits and making changes to negative gearing for existing properties. By all accounts, negative gearing will still be available for newly-built residential properties, but not for established properties.

Without a doubt, as the next election approaches, we are going to see much posturing by political parties of all persuasions, as they jockey for control over Australia’s $2.7 trillion superannuation nest-egg.

 

Source:  Peter Kelly | Centrepoint Alliance