Search

Redundancy a real test

THE recent spate of corporate collapses and the wave of corporate downsizing now under way are forcing many people to suddenly confront their retirement prospects.

Instead of saving for a distant retirement, people are crunching the numbers to see how well they can cope with their existing savings.

And for the first time they also are discovering products like lifetime-complying pensions.

RetireInvest Perth’s Lindsay Binning said there were many variables that people facing redundancy needed to assess. Their age, current wealth and future aspirations – for instance, do they want to continue working – are critical factors.

Often the most difficult choices confront people aged between 55 and pension age – they are old enough to get access to their superannuation but not old enough to qualify for the aged pension.

In many cases, people in this age group are tempted to withdraw their super and start enjoying retirement.

However, Lindsay Binning said this approach could be to their long-term detriment, especially with new rules governing eligibility for Centrelink entitlements for people below aged or service pension age.

Under the new rules, money in a superannuation fund is exempt from the government’s assets test.

The big winners from this change are early retirees who will now find it a lot easier to qualify for benefits such as Newstart Allowance and Partners Allowance.

They will be able to keep their savings in a super fund and build their wealth, without compromising their government benefit entitlements.

Prior to the new rules, many early retirees with modest savings were surprised to discover they did not qualify for a government benefit.

This is because a married, non-working 55-year old loses all Centrelink entitlements if their assets (excluding the family home and superannuation) exceed $200,500. This figure includes assets like a car and house contents, therefore investible assets that can generate an income may be as little as $150,00p Mark Beyer

THE recent spate of corporate collapses and the wave of corporate downsizing now under way are forcing many people to suddenly confront their retirement prospects.

Instead of saving for a distant retirement, people are crunching the numbers to see how well they can cope with their existing savings.

And for the first time they also are discovering products like lifetime-complying pensions.

RetireInvest Perth’s Lindsay Binning said there were many variables that people facing redundancy needed to assess. Their age, current wealth and future aspirations – for instance, do they want to continue working – are critical factors.

Often the most difficult choices confront people aged between 55 and pension age – they are old enough to get access to their superannuation but not old enough to qualify for the aged pension.

In many cases, people in this age group are tempted to withdraw their super and start enjoying retirement.

However, Lindsay Binning said this approach could be to their long-term detriment, especially with new rules governing eligibility for Centrelink entitlements for people below aged or service pension age.

Under the new rules, money in a superannuation fund is exempt from the government’s assets test.

The big winners from this change are early retirees who will now find it a lot easier to qualify for benefits such as Newstart Allowance and Partners Allowance.

They will be able to keep their savings in a super fund and build their wealth, without compromising their government benefit entitlements.

Prior to the new rules, many early retirees with modest savings were surprised to discover they did not qualify for a government benefit.

This is because a married, non-working 55-year old loses all Centrelink entitlements if their assets (excluding the family home and superannuation) exceed $200,500. This figure includes assets like a car and house contents, therefore investible assets that can generate an income may be as little as $150,000.

In the past, many early retirees had to live off their modest savings until they qualified for an aged pension.

An alternative option was to purchase a lifetime-complying pension.

The main advantage of lifetime-complying pensions is that the money invested is exempt from the Centrelink assets test.

However, these products have some shortcomings, including limited flexibility and curr-ently low interest earnings.

Mr Binning said people needed to consider carefully the effect of a lifetime-complying pension on their total income. It is generally not appropriate if they exceed the asset test cut-off threshold by a large amount or they are subject to the Centrelink income test.

Once retirees reach aged pension age, they will be able to restructure their financial affairs, perhaps investing in a product called an allocated pension.

Allocated pensions are popular products for retirees. They deliver a regular tax-effective income and also provide a high degree of control and flexibility.

Individuals decide how their money is invested and how much income they receive (within prescribed limits).

Allocated pensions also receive concessional treatment under the Centrelink income test.0.

In the past, many early retirees had to live off their modest savings until they qualified for an aged pension.

An alternative option was to purchase a lifetime-complying pension.

The main advantage of lifetime-complying pensions is that the money invested is exempt from the Centrelink assets test.

However, these products have some shortcomings, including limited flexibility and currently low interest earnings.

Mr Binning said people needed to consider carefully the effect of a lifetime-complying pension on their total income. It is generally not appropriate if they exceed the asset test cut-off threshold by a large amount or they are subject to the Centrelink income test.

Once retirees reach aged pension age, they will be able to restructure their financial affairs, perhaps investing in a product called an allocated pension.

Allocated pensions are popular products for retirees. They deliver a regular tax-effective income and also provide a high degree of control and flexibility.

Individuals decide how their money is invested and how much income they receive (within prescribed limits).

Allocated pensions also receive concessional treatment under the Centrelink income test.

Add your comment

BNIQ sponsored byECU School of Business and Law

Students

6th-Australian Institute of Management WA20,000
7th-Murdoch University16,584
8th-South Regional TAFE10,549
9th-Central Regional TAFE10,000
10th-The University of Notre Dame Australia6,708
47 tertiary education & training providers ranked by total number of students in WA

Number of Employees

BNiQ Disclaimer