Opinion
I’ve paid taxes all my life. Am I entitled to a full pension?
Paul Benson
Money contributorI am 77 and finally retiring from my professional career. I have no super fund as I invested in a second property which we recently sold with a $1.2 million net profit, which we intend to live off for at least the next 10 years.
Our home is currently valued at $3 million and has a $1.2 million mortgage. Given the considerable taxes I have paid over the years, am I eligible for a full pension? I intend to deposit the sale proceeds into an offset account to net out our mortgage.
Paying tax throughout your life doesn’t automatically entitle you to a full pension.Credit: Simon Letch
Thanks for your question and congratulations on having such a long professional career. The first thing to note is that whilst it is the case in some countries the taxes you pay include a social security levy that ultimately entitles you to a pension later in life, here in Australia that does not apply. Instead, we have the superannuation system, which is superior in numerous ways.
That being the case, taxes you’ve paid throughout your working life have no bearing on your age pension entitlement. Rather, your entitlement to an age pension is determined based on need. An asset test and income test will be applied, and whichever leads to the lower entitlement, that will be your pension.
Under the asset test, the family home is ignored. Given this value is ignored, any debt is also ignored. Your plan to put the sale proceeds in an offset account will result in these monies being captured in the asset test, which will be detrimental to you with regards your pension entitlement. Likely a better outcome would be for you to instead pay most, but not quite all, off your mortgage, and then redraw from this as needed.
Note that assets such as vehicles, contents, and any other investments are all included in the asset test. It is only your home that is disregarded.
Depending on the interest rate on your mortgage, it could also be worth exploring the government’s home equity release scheme. You may get a better long-term outcome by paying off that debt and using the equity release scheme as a way to provide you with a comfortable income in retirement. Worth exploring in any event.
Can a financial planner help me change careers? I currently work in recruitment and whilst it pays well, it is high pressure. I’d like to make a midlife career change and become a school teacher. But that requires going back to uni for a period, and then a drop in pay. You write a lot about super, investments, etc, but can a financial planner help with this sort of goal? If not, who should I talk to?
It is the case that some financial planners specialise in investment and superannuation advice only. However, you will find that most also provide financial modelling services where they can run different scenarios for you to help understand what is possible.
If your career change is not possible immediately, it may be something to work towards over a few years. For example, the modelling might show that whilst you can’t make ends meet on the lower wage right now, if you could get your mortgage down to a certain level, there would be scope to renegotiate the repayments. With lower mortgage payments, making ends meet on the lower initial wage might become feasible.
It would also be worth thinking about the age at which you retire when doing this modelling. If you continue in your current role, you will likely want to retire as early as possible given the high pressure.
I don’t imagine teaching is especially low stress, but given it is something new, perhaps your career change enables you to stay in the paid workforce for longer, thus the lower wage (at least initially), and consequent lower super contributions, are balanced out by more years to save, and fewer years living off your retirement savings
All this is to say that yes, a financial planner can certainly assist in you making a successful career change. Perhaps just give them a call before booking online to check that financial modelling is a service they provide.
Paul Benson is a certified financial planner. Questions to: paul@financialautonomy.com.au
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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