UK and OZ state pensions

[Tarby777]

Hi all,

My wife will start to receive her UK state pension this year, and she will reach the qualifying age for the Aussie state pension 12 months later. We've sent off the paperwork to HMRC to start the ball rolling, but I'm wondering what to do for the best when the time comes that we're able to apply for the Aussie pension. She'll get pretty much the maximum UK pension but IIRC it isn't index-linked if you live outside the UK. the Aussie pension is income- and asset-tested and I imagine that her UK pension would be seen as foreign income that would reduce her entitlement to the Aussie pension, as would her super balance. The idea of cashing out on super and paying down the mortgage has crossed our minds.

We're UK and and Aussie citizens, living in Oz 100% of the time. I'll still be working for a few years. So many things to consider! How have others navigated this stage of life?  

TIA

Tarby

Edited August 5, 2023 by Tarby777

[InnerVoice]

4 hours ago, Tarby777 said:

the Aussie pension is income- and asset-tested and I imagine that her UK pension would be seen as foreign income that would reduce her entitlement to the Aussie pension, as would her super balance. The idea of cashing out on super and paying down the mortgage has crossed our minds.

Your wife's UK state pension will be an income stream that will reduce her entitlement to the Aussie Age (state) pension, as you've correctly stated. If you're still working, then your income will also be taken into consideration and would reduce her Age pension further. As a home-owning couple you're allowed $451,500 in assets before your aged pension starts being reduced, but that's assuming you had no other income. Using some of your super to pay down your mortgage would seem like a good idea given current interest rates, but it's still worth getting professional financial advice to ensure you've considered all the angles.

Here's a link to a useful calculator I've used previously, but it hasn't been updated since March 2023 so doesn't yet include the July 2023 increases in income and assets thresholds.

http://www.yourpension.com.au/APCalc/#CalcForm

July 2023 Age Pension changes are detailed here;

https://retirementessentials.com.au/news/centrelink-age-pension/july-2023-age-pension-changes/

Edited August 5, 2023 by InnerVoice

[Marisawright]

There are two tests for the Australian pension:  one is assets, the other income.  Your superannuation counts as an asset, your home doesn't.  So if you move money out of your super into your home (by paying off the mortgage), you've reduced the size of your assets and therefore you'll get more pension.  

You're right that the British pension will be counted as income so that will reduce the Aussie pension, but it's not dollar for dollar, so she'll still be better off.

[Andrew from Vista Financial]

On 05/08/2023 at 11:17, Tarby777 said:

Hi all,

My wife will start to receive her UK state pension this year, and she will reach the qualifying age for the Aussie state pension 12 months later. We've sent off the paperwork to HMRC to start the ball rolling, but I'm wondering what to do for the best when the time comes that we're able to apply for the Aussie pension. She'll get pretty much the maximum UK pension but IIRC it isn't index-linked if you live outside the UK. the Aussie pension is income- and asset-tested and I imagine that her UK pension would be seen as foreign income that would reduce her entitlement to the Aussie pension, as would her super balance. The idea of cashing out on super and paying down the mortgage has crossed our minds.

We're UK and and Aussie citizens, living in Oz 100% of the time. I'll still be working for a few years. So many things to consider! How have others navigated this stage of life?  

TIA

Tarby

Hi

Yes as mentioned by Marisa the UK State Pension is considered under the income test, however you are entitled to a certain amount of income per fortnight without a reduciton to the Age Pension: https://www.servicesaustralia.gov.au/income-test-for-age-pension?context=22526

It's perhaps not as bad as you might think, this is a very easy to use basic Age Pension entitlement calculator which you could try, to get a bit of an idea: https://www.noelwhittaker.com.au/resources/calculators/age-pension-calculator/

With regards to using your Super to clear the mortgage, this may be a good idea but of course there would be various factors to consider based on individual circumstances and goals and objectives such as retirement income requirements, mortgage interest rate, intention for you home through retirement, balance of super and investment risk profile of you/your wife, age of Age Pension applicants spouse (ie you), other income streams, other assets etc.

It may be that your Wife's Super balance (along with other assessable assets) is under the lower asset threshold https://www.servicesaustralia.gov.au/assets-test-for-age-pension?context=22526 or just slightly over to the point that the income test is still the barrier.

It may be depending on your age that a Superannuation spouse sharing strategy may be appropriate.

Could be well worth while taking some financial advice on this one.

Regards Andy 

 

Edited August 8, 2023 by Andrew from Vista Financial