'Downsizer contribution' can boost long-term security

You can then make “downsizer contributions” into a super fund. This would bolster your savings for your old age and allow you some extra security.

One of the things that people should be aware of as they age — and which is often forgotten when budgeting for retirement — is that, frequently, one spouse (often the male of the species) becomes incapacitated long before the other, and may have to move singly into respite care or even full-time residential care, which is usually expensive.

My wife and I retired in 2001 and we are now aged 77 and 78, respectively. I receive about $34,000 in Victorian Emergency Services & State pension and we both receive allocated pensions from AustralianSuper. We recently received letters from the Department of Human Services asking us to provide taxable income, plus income streams from AustralianSuper. We handed this in to our local Centrelink office and were told that we were within the maximum income limit for couples. However, I note that, in a column last year, you write that an allocated pension beginning after January 1, 2015 is liable for "deemed income". Do I conclude that if you started an allocated pension prior to January 1, 2015, then we do not need to produce details of these for deeming calculations? We started our allocated pensions with AustralianSuper in July, 2010 and both draw down the minimum required by law —$22,780 for my wife and $12,020 for me. The person in Centrelink today was unfortunately unable to answer my question.  K.W.

You are correct in that allocated pensions started after 2015 are subject to “deeming,” which means the first $85,000 (for couples) of financial investments — such as shares, bank deposits, allocated pensions and, after reaching age pension age, superannuation accumulation funds — are deemed to earn 1.75 per cent interest and the balance, 3.25 per cent.

However, pre-2015 allocated pensions are still subject to Centrelink’s income means test, though using a different calculation.

Instead, the test ignores an annual “deductible amount” equal to the amount of money you first placed in the fund (which would have been in 2001 in your case) divided by your life expectancy at the time (which is sometimes called the “relevant number” or RN on a fund’s Centrelink statement, when you would have been aged around 60.)

The “deductible amount” test is generally seen as being more “pension friendly” i.e. resulting in a higher age pension.

Centrelink needs to know your current allocated pensions so that, after subtracting the “deductible amount”, any excess is counted by the means test.

Just be aware that, if you rollover to a new allocated pension, you lose this pension friendly deductible amount and the new fund will be subject to deeming.

We have superannuation investments with public service sector fund StatePlus and were concerned to read your comment in June, 2018 that StatePlus was a fund worth leaving. We are fortunate to have been comfortably retired for some years. We own our home, are debt free and do not expect any major expenses. We have an indexed State Authorities Super Scheme pension, which provides more than enough to meet our usual living costs. In addition to the SASS pension, our combined StatePlus super is $1.5 million, from which we draw the minimum, and we have other investments of $185,000. A few months before reading your comment, we paid a one-off fee of $5,000 to move to StatePlus investment options, which will result in lower fees in the long term. We would lose this $5,000 if we changed funds. We have done some work trying to compare funds but have not come to a decision, as we find it difficult to evaluate the overall result of return, fees and risk. What is your current view on investing with StatePlus? T.M.

StatePlus previously included advice fees as part of the ongoing fee, which led to generally poor returns.

Its Financial Services Guide (FSG) currently states that, in its Allocated Pension, Personal Retirement Plan and Investment Fund A, “StatePlus generally does not charge a separate fee for providing financial planning advice and services to you. We receive a single ongoing management fee that covers the cost of... most advice services.”

Other products, namely the Flexible Income Plan, Transition to Retirement Plan, Tailored Super Plan and Investment Fund B, charge “A percentage-based fee for ongoing advice of up to 0.75% pa... up to the maximum... $8,000”.

I assume that fund members have to agree to this beforehand, as StatePlus now charges for advice separately to product fees, although the FSG doesn't say so.

About this time last year, the business announced it was repaying about $1 million in advice fees where no advice was supplied.

When advice fees are not included in the performance calculations, this improves the funds’ returns and, I note from SuperRatings latest research figures, the funds don't seem to be hugging the basement any more.

Ultimately, its your choice whether to stay or not but I can’t imagine what advice you received for $5,000, if it only involved switching to a lower-fee fund within the same firm. It seems overly expensive.

If you have a question for George Cochrane, send it to Personal Investment, PO Box 3001, Tamarama, NSW, 2026. Help lines: Australian Financial Complaints Authority, 1800 931 678; Centrelink pensions 13 23 00. All letters answered.