Here’s a financial dilemma that’s bound to spark debate: Should a couple with $1.2 million in superannuation strategically adjust their assets to qualify for the age pension, or is it better to maintain a robust financial cushion for the future? My wife and I find ourselves at a crossroads. I’m 67, still working full-time with a solid income, while she’s 56 and works part-time. We’re mortgage-free, but the question of whether to pursue a partial age pension has us divided. She’s drawn to the potential benefits, while I’m hesitant to tinker with our finances for what might feel like a marginal gain. Who’s got the right approach? But here’s where it gets controversial: Is it worth the effort to restructure assets for a pension when you’re already financially secure, or does that cross into unnecessary financial manipulation?
Let’s break it down. Broadly speaking, if you’re entitled to the age pension, you’ll qualify—no fancy footwork required. Personally, I’m not a fan of financial gymnastics just to squeeze a few extra dollars from the system when we don’t truly need it. And this is the part most people miss: Our 11-year age gap could theoretically allow us to shift some superannuation from my account to hers, temporarily improving our position for the pension assets test. But there’s a catch. Once I retire, our super becomes a tax-free pension, while any transferred amount in her account would still be subject to a 15% earnings tax. So, the pension gain might be overshadowed by higher taxes—a trade-off that requires careful calculation.
Now, I do think equalizing superannuation balances between partners is a smart move, both for fairness and to navigate rules like the transfer balance cap. But I wouldn’t recommend it solely for a temporary pension boost. Here’s a thought-provoking question: Are we overcomplicating things, or is this a savvy way to maximize benefits?
Shifting gears, our SMSF is set to receive $80,000 in compensation from the CSLR (Compensation Scheme of Last Resort) due to past poor financial advice. But here’s the kicker: How will this payout be taxed, and what does it mean if we decide to wind up the fund? The good news is the CSLR ensures consumers are protected when licensed advisors fall short. The compensation will likely be taxed at 15% as income when received, but it’s best to confirm with your SMSF accountant, especially if you’re planning to close the fund.
Lastly, for those earning around $43,000 annually and a decade from retirement, is salary sacrificing to super worth it? Not really. With a 16% tax rate on income between $18,201 and $45,000, salary sacrificing only saves 1% in tax but locks away your money until at least age 60. Instead, consider making after-tax contributions to snag the government’s $500 co-contribution—a more immediate benefit.
What do you think? Is pursuing the age pension a wise financial move, or is it unnecessary tinkering? Share your thoughts in the comments!
Disclaimer: This advice is general in nature and not tailored to individual circumstances. Always consult a professional before making financial decisions. For more expert tips, subscribe to our Real Money newsletter and explore the Financial Autonomy podcast hosted by Paul Benson, a Certified Financial Planner at Guidance Financial Services.
