Changes to superannuation policies are encouraging older Australians to downsize their home to free up some cash for their retirement but there could be consequences if not planned carefully.
While it’s a common strategy for retirees, it can have significant Centrelink and super implications that make it not so easy.
Crunching the numbers and understanding the complete picture is important.
The government announced that from 1 July 2018, individuals aged 65 or over will be able to make a contribution to super of up to $300,000 from the proceeds of selling their home. Both partners in a relationship can contribute to their super under this policy, meaning a couple can contribute up to $600,000 to their super.
These contributions will not count towards the concessional or non-concessional contribution caps and the individual making the contribution will not need to meet the existing maximum age, work or $1.6 million balance tests for contributing to super.
Conditions are the home sold must have been owned by the individual or couple for the past 10 or more years and that it has been their primary place of residence.
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The new super rule change is also part of the government’s plan to encourage baby boomers to downsize to increase the supply of larger homes for first home buyers and younger families, ultimately improving housing affordability.
Important things to consider
The biggest concern is the impact this super contribution could have on retirees receiving the Age Pension or Department of Veterans’ Affairs benefits – it could result in loss or a significant drop in pension.
Plus, those who are dependent on Centrelink could make their eligibility to social services position worse by undertaking these super contributions.
Why? Because these super contributions will be counted for relevant asset and income tests.
Before putting the family home on the market, it’s important retirees consider the wider financial and social consequences of downsizing, any possible tax penalties and the ability to receive a pension from their super fund.
On the flipside, the new super rules will greatly benefit retirees who are asset rich, and therefore excluded from pension benefits under the asset test.
Seek financial advice
If you’re thinking about downsizing, to be on the safe side it’s a good idea to talk to a financial advisor about your current situation and the potential benefits and implications.