Downsizing and your Age Pension

[00:00:00] Introduction

Jeff: [00:00:02] I've probably seen Downsizer contributions really popular with people who are 75 plus, because from 75 onwards we can no longer make voluntary contributions to super. 

Andrew: [00:00:18] More Australian home owners consider downsizing ahead of retirement than actually go ahead and put up the for sale sign. Selling the family home is a big decision, but it can also be the key to a much more comfortable retirement. There's a lot to consider. So in this episode, we'll look at what the Downsizer contribution is, how your Age Pension might be impacted and whether it makes sense for you. So keep listening to help shift the way you think about your super. From CBUS, I'm Andrew McKinnon and this is CBUS Super Shift. There's no downsizing in the guest stakes on this podcast, particularly with the likes of Eamonn Wolfe, CBUS coordinator and demolition and cranes expert by trade. Eamonn, welcome and thanks for being part of the CBUS Super Shift podcast. 

Eammon: [00:01:13] Thanks a lot for having me. I appreciate you inviting me along here with Jeff. Looking forward to doing the podcast. 

Andrew: [00:01:18] And then of course, with guests like Jeff Wallens rounding out the panel. Senior education specialist at CBUS with 25 years in superannuation. You know it's going to be a great chat. Jeff, great to have you here. 

Jeff: [00:01:30] Thanks very much, Andrew. Great to be here. 

Andrew: [00:01:32] Now, just before we dive in, I want to remind listeners that the information in this podcast is general in nature and may not account for your specific needs. Please consider your financial position, objectives and requirements before making financial decisions. Please read the relevant product disclosure statement and target market determination on our website to decide if CBUS is right for you. We'd also like to remind listeners that past performance is not a reliable indicator of future performance. Okay, let's get to it. As we kick off, it's worth making the point that the Downsizer contribution is a government scheme distinct from the idea of downsizing. 

What is downsizing?

Jeff: [00:02:19] So typically downsizing, of course, might be just simply moving to a smaller home. And there can be all sorts of reasons for that. This is downsizer contributions, which is the ability to sell your home, a house they've owned for at least ten years. And I do stress it's a house, not a caravan or a houseboat, but a fixed residence. And from the age of 55, to put up to $300,000 per person into super. And this might be done for a couple of reasons. Someone might be considering downsizing anyway, from their family home, where they've lived for a long time, to something smaller, more manageable, maybe in a completely different location, you know, a beach town or a country town, or into the city, or in theory, moving to a nursing home which someone might have been considering doing. Now, you don't necessarily need to downsize, but it's simply freeing up equity in your home and being able to put some of that into super. 

Andrew: [00:03:15] Eamonn, do you hear members chatting about downsizing at all? 

Eammon: [00:03:19] We do get the question on what it means. And and it is a very big decision to make and it shouldn't be taken lightly because it has implications on your pension and so forth. 

Your goals, lifestyle and downsizing

Jeff: [00:03:31] And I think it's really important that people look at what it is that they're wanting to achieve. Are they wanting a lifestyle change with a financial benefit, perhaps being super, or are they really being driven by the opportunity to get money into their super with their change in living circumstances being less of a consideration? Because time and time again, I've seen retired members making big lifestyle changes with a financial objective and realizing that from a lifestyle point of view, it was a mistake and that might be being removed from their community. Losing access to a garage workshop, whatever it is that they've enjoyed in their home. So really important to weigh up. Is this a lifestyle decision or a financial one? 

Andrew: [00:04:21] This is a very important point. If you love gardening in your backyard or have a shed or a third bedroom where you create and you want to keep doing these things in retirement, downsizing might not be the best option. But if the funds are needed to expand your super balance, that's a different discussion, because the Downsizer contribution doesn't require you to move to a smaller house or to a different area. It just requires you to sell your home. So really, the key takeaway is to consider the implications before settling on either option. Jeff, if the decision is made to sell the home and downsize, can using the Downsizer contribution scheme influence our Age Pension? 

The Age Pension and downsizing

Jeff: [00:05:02] Yes, it can impact Age Pensions. So from the age of 67, the earliest age that someone can get the Age Pension. When you go along to be assessed for your eligibility for the Age Pension, the value of your home is not counted as an asset. Whereas if you sell your home and that money goes into a bank account, certainly into super, then it will be counted as an asset. So by freeing up that equity that you have in your home, by selling it, that can have all sorts of financial benefits in terms of boosting your super balance if you put that into your super. But it can count against you in qualifying under the assets test. So as Eamonn said, you'd need to be very careful with whether this is the right thing to do and whether the impact on Age Pension might actually have a detrimental effect on your overall retirement income. 

Eammon: [00:05:54] Absolutely. 

Andrew: [00:05:55] And look, everyone's situation is different. If you're not sure what the impact might be for you, speak to the CBUS advice team. They can help you understand your options and offer different levels of guidance. It really depends on what you need. Now, while the Downsizer contribution sounds like a good opportunity, would members consider it come retirement? 

Layla 24: [00:06:32] Yeah, I think so. I've seen my grandparents do it and they loved it. Like they were much happier in a smaller space. They had more money to do what they wanted to do, and it was a nice change for them to not be stressed about a big house and a big garden and yeah. 

John Doe2: [00:06:49] No way. No. We've worked so hard for our home, I'd never want to sell it. 

John Doe3: [00:06:57] Um, have I ever thought about selling my home to boost my retirement savings? Uh, yes, I have, because I would like to live by the beach one day.  

Downsizer contributions to super

Andrew: [00:07:14] Some mixed views there, of course, but let's get into more of the details around the Downsizer contribution scheme and see how much it could impact your super balance. 

Jeff: [00:07:24] Alright, so the Downsizer contribution is putting some of the proceeds of the sale of your home into super, and it's up to $300,000 per person. So regardless of the sale amount, it might be a million, 2 million. Whatever it is, it's a maximum of 300,000 per person. So for a couple up to 600,000. And this is available for people who are aged 55 plus. And that might sound like a fairly young age to be considering downsizing, but the door is open to do it if people want to. I've probably seen this really popular with people who are 75 plus, because from 75 onwards we can no longer make voluntary contributions to super. But that little rule, that restriction does not apply to downsizer contributions. So for people who who otherwise can't get money into super, but they're sitting in their big family homes still, it can be a great way to boost their super after turning 75, when otherwise they may not be able to make extra contributions. 

Andrew: [00:08:27] One of the last opportunities to actually put something into your super. That's such a great point, Jeff. So while the door to making voluntary contributions to super closes at 75, the Downsizer contribution is still available. Really, it's one of the last opportunities to put something into your super yourself. 

Jeff: [00:08:46] Yeah, absolutely. Yep. 

Andrew: [00:08:48] I'm curious, Eamonn, is this something that members know about or is it not quite on their radar yet? 

Eammon: [00:08:54] Breaking into age brackets, under 30,they don't really care. I know I didn't. You tend to have different visions of where you're going to be and what's going to be going on, and something that's going to turn up maybe 30, 40 years down the track. It's not a priority. But as time goes by, it becomes more and more a factor that people look towards. And as Jeff highlighted at some stage, you haven't got an option if you're lucky enough to make it to 75. So it becomes a financial decision, whether it's a home that you love and there's a lot of memories, or now you need to put some money in super. So that's the way it breaks down. 

Conditions for downsizer contributions

Andrew: [00:09:31] Yeah, it could end up being a needs must situation. What about conditions Jeff? Are there stipulations around the downsizer contribution that people need to be aware of? 

Jeff: [00:09:40] Yes, there are quite simply the contribution to super off the back of selling your home would need to be within 90 days of the sale of the property. 

Andrew: [00:09:50] Three months? That's not a huge amount of time. 

Jeff: [00:09:53] Three months. Yep. So if someone had unusual circumstances that delayed the sale or something like that, then they can apply to the ATO to have that extended if that application is done within the 90 days. 

Andrew: [00:10:06] So the application to the ATO also has to happen within the 90 days from the date of sale. Does this catch people out, Jeff? 

Jeff: [00:10:13] Absolutely, yes. And I've had people in seminars say, oh, I sold my house last year, you know, maybe over six months ago. Can I put that in? So they're thinking about it reactively as opposed to having planned it. 

Eammon: [00:10:24] And you're going to do it once. 

Jeff: [00:10:26] Yes. Well, you can only do it with the sale of one property. You can make multiple downsizer contributions, but only to a maximum of 300,000 per person and off the sale of the one property. And we often get asked, well, what about investment properties? And the answer there is well, yes. If at some point that was your main residence and you've owned it for at least ten years, then that could fall within the downsizer provision. 

Consider if a downsizer contribution is right for you

Andrew: [00:10:53] Does making a downsizer contribution to your super always make financial sense? 

Jeff: [00:10:59] No, no it doesn't. So typically for people moving into retirement, their home is their largest asset. Of course we we love paying off our mortgages and moving into retirement debt-free. But downsizing our house is just one way to free up some equity. And equity in our homes is becoming a more and more important source of income now in retirement, either through the Downsizer contribution provision or being able to use that equity in other ways to also produce income. And there are arrangements through Centrelink where people can do that. So it's really a combination of accessing that equity and also achieving a lifestyle change at the same time. 

Andrew: [00:11:42] And beyond the money side of things, Eamonn, have you seen CBUS members relieved once they've made the move or even the opposite perhaps regretted it? 

Eamonn: [00:11:52] I haven't seen anyone who's regretted it because it is something that people, the ones I'm dealing with, they take it very seriously. And so even just putting a simple transfer in can be a big deal. And it's a large amount of money. I sometimes have to hold people's hand and they do BPAY all the time. And yet when it's a large amount of money, they become very concerned. So regretting it. I haven't had that, but most people have been positive because remember, the returns since conception for growth have been good returns. And whilst we can have downtimes, generally superannuation is always a beneficial thing to be involved. And that's why I'm so happy that Australia's got that system. 

What to consider before making a downsizer contribution

Andrew: [00:12:34] So Jeff, there are some really important elements to keep in mind. What are the bigger mistakes people need to avoid when it comes to the downsizer contribution? 

Jeff: [00:12:44] I think not considering the impact on their Age Pension, that's a key one, and also dismissing the 90 day window and being in a position where they're having to apply to the ATO to have that 90 day cut off reviewed. The other thing also, I think, is reducing their equity. So of course, by using the Downsizer contribution provision, the whole point of that is to enable someone to tap into the equity in their home. So even though they're making a contribution to super, they are reducing the equity they have in in their living arrangements because you've got to go in and live somewhere afterwards. For example, a nursing home or a smaller house, a unit where they would have less equity. So it is really important to review whether they are better off maintaining that equity in their home, because that can have benefits with other potential forms of income, or using that equity to create income, or whether they're better off having that extra money in their super, which can be used to produce income. So it's a toss up between the two. 

Where to go for more information

Andrew: [00:13:46] Absolutely right. Now, we might not have covered every single detail in this episode, but there's so much you can do to find out more and take control of your super. Attend Jeff Wallen’s excellent seminar or webinar on Downsizer contributions. He keeps it interesting and even fun. Just head to the CBUS website, search for ‘education sessions’ and select that or any session that suits you. You can also listen to more of the CBUS Super Shift podcast, which covers a range of topics to help you make the most of your Super now! You can also hop online and use one of our calculators to see how much super you might have when you retire, and how much income that could provide. Also, to get an estimate on how much Age Pension you're likely to receive and when you can apply for it. And of course, there's the website cbussuper.com.au. For more detail on everything you've heard in this episode. There's also the CBUS advice team on 1300 361 784, where you'll find stellar support and reach out to the on site co-ordinators like Eamonn, or even walk into the CBUS front counters located in each state, and you'll find staff ready to help. All of this information can also be found in the show notes of this episode. Jeff, thanks so much for helping to explore a topic that many members may not know much about in a way that's been easy to understand. 

Jeff: [00:15:19] Thanks very much, Andrew. Great to be on board. 

Andrew: [00:15:21] And Eamonn, we appreciate your time and insights from the frontline. 

Eamonn: [00:15:25] Same. Thanks a lot. Appreciate being here. Enjoyed it. 

Andrew: [00:15:31] You've been listening to the CBUS Super Shift podcast. Listen to more episodes at cbussuper.com.au/podcast forward slash Podcast or follow Apple Podcasts, Spotify, or wherever you listen to podcasts.