If a couple both have superannuation balances in pension mode of more than $1.6 million after June 30, and also substantial sums in accumulation mode, what will be the situation if one dies? Is it possible for the survivor to take over the $1.6 million tax-free pension account in addition to their own?
A person is allowed only one $1.6 million tax-free account – but, if the survivor wished they could commute $1.6 million back to their accumulation account. This would increase the balance of their accumulation account by $1.6 million. They could then use the "gap" so created to transfer in the $1.6 million pension balance of the deceased. The bad news is that the entire accumulation balance of the deceased would then have to be cashed out and removed from the superannuation system.
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The good news is that taxes on fund earnings on money held in the accumulation account are just 15 per cent. No minimum drawdowns would be required on that account. The end result is that effectively $1.6 million of the deceased's super ends up in accumulation and the balance is taken out of the system. In a situation like this it is critical that the survivor is capable of handling large sums of money or else is open to expert advice.
I have heard about more planned budget cuts and wonder if we will see a reintroduction of death duties. How do you feel about death duties as part of a federal government taxation system?
Death duties were a state tax and it would be virtually impossible to get all states to agree to reintroduce them at the same time. In any event, we have two highly effective "death duties" now – these are the 16.5 per cent tax on the taxable component of a super fund that is left to a non-dependant, and capital gains tax on assets left to beneficiaries when an investor dies. Personally, I am not in favour of death duties as they are easily evaded by the rich and are now unnecessary in view of the other taxes mentioned before.
As a regular reader of your column I note that when you give an example of how we older citizens should arrange our affairs, especially about selling our houses to move to retirement villages etc, your examples are always about properties worth $500,000 to $700,000.
Not all of us have properties worth such vast sums. Like many rural towns throughout Queensland, the average value of a house here is $250,000. My property, a three-bedroom, three bathroom townhouse, is only worth $275,000, if I am lucky. How do we, pensioners, make the move to a retirement village? Can you suggest some strategies?
Aged care guru Rachel Lane points out that the values of retirement village units are normally in line with local house prices, so if the average house where you live is $275,000 then a unit in the local village is probably about $230,000 to $250,000.
If this is not the case and units in the village are more than the value of the house, it's important to be aware that you can negotiate your contract with the village – generally speaking if you pay less upfront you pay more at the end.
I am 64 and still work, earning $25,000 a year. My husband is 74 and is receiving a part pension of $356 a fortnight. I have $700,000 in super and am thinking about withdrawing $400,000 from it, when I turn 65 to pay off our children's mortgage. We own our own home. How would this affect my husband's pension, will I have to wait six years to receive my pension and will I even be able to get the pension? Is it better for me to apply for the pension when I turn 65 years and then withdraw $400,000 as a lump sum? How would this affect our pensions?
The money you have in super will not be counted by Centrelink until you reach pensionable age – but obviously would have a big effect on your pension under the assets test once it becomes assessable. If you give $400,000 away it will be treated as a deprived asset for five years but will then cease to be counted by Centrelink. Therefore the main difference between giving it away, and holding it is a much bigger pension in five years if the current rules are still applicable then. Whether you will be eligible for a pension in six years will depend on your financial situation then and the prevailing regulations then.
Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. Email: asknoel@fairfaxmedia.com.au.