The family home is not counted toward an asset—an age pension received in Australia—by many retirees. Meanwhile, by providing this exemption, the homeowner can effectively apply for a pension in many instances, even if their home value is very high. However, it’s when an owner sells the home to buy another one that things invariably get out of hand. When the home is exchanged for cash and invested or otherwise stored as an asset, the incredibly named Services Australia’s Pensions also undergo a review. Payments are simply made through Centrelink.
If a pensioner sells her main residence as she eventually would, the sale proceeds also transform into financial assets. This could influence the Age Pension, because Centrelink operates an assets test and an income test to verify the entitlements and amounts payable. Should the proceeds of the sale of the home duly be left in a savings account or investment for any considerable time, that money will be counted as an asset, which of course will reduce pension payments.
An illustration of this situation would be where a couple selling their home ends up with $900,000, yet on their clearer path appears the goal of spending only $600,000 to acquire another home. Therefore, the additional $300,000 might just ‘work against their pension eligibility.’
The Little-Known Exemption Many Misses
There is a key relaxation rule. If the sale proceeds are destined for the purchase or the redevelopment of the principal residence, the funds can be exempt from the assets test for up to 24 months (even sometimes longer, in the event of delays).
Of course this excusatio non fit injuria. However, by no means should one feel that one’s retirement savings are totally off the Centrelink earnings test radar. Deeming rules may apply to lower benefits. These state that a person receives a certain level of income even if the cash is placed in some savings account. So under assessment these deemed income amounts may affect pension payments.
The Downsizing Trap
One of the largest hidden impacts comes when retirees decide to downsize to a cheaper house. The resulting surplus cash from the sale becomes a deemed asset immediately. If this pushes the retiree over the Age Pension asset limits, their pension is reduced or cancelled.
Such circumstances always seem to catch Australians by surprise, believing that the selling and repurchasing of homes would not be affecting their payments.
Points to Ponder for Pensioners Who Wish to Sell
Retirees should consider carefully how the sale might affect pension. Alert Centrelink immediately after the sale, and professional financial advice can result in minimizing any unknown adverse consequences. Retirees could also be able to benefit by selling and buying anew based on financial aspects; in this regard, having a good understanding of the Age Pension guidelines will ensure the pensioner a certain amount of foresight before moving.