The Government’s proposed capital gains tax changes could make retirement planning even more important for Australians who hold investments outside super.

Under the proposed rules, some individuals may face a minimum tax rate of 30% on capital gains made outside super. Importantly, people receiving certain means tested income support payments, such as the Age Pension, are expected to be exempt from this minimum tax rule.

That means qualifying for even a small part Age Pension could become more valuable than the pension payment itself in some circumstances.

However, this is not something retirees should rush into. The rules are still being finalised, and any strategy needs to be considered carefully in the context of your overall retirement plan, cash flow, estate planning and lifestyle goals.

Why the part Age Pension may become more important
Many retirees assume the Age Pension is only relevant if they have limited assets. In reality, some Australians with meaningful retirement savings can still qualify for a part Age Pension, depending on their assets, income, home ownership status and relationship status.

The family home is generally exempt from the Age Pension assets test. Other assets, such as bank accounts, shares, investment properties, managed funds, account based pensions and some superannuation balances, may be assessed.

If the proposed CGT rules come into effect, retirees who are close to qualifying for a part pension may need to review whether their assets are structured as effectively as possible.
For some people, receiving even a small amount of Age Pension may provide access to broader benefits, including the Pensioner Concession Card and potentially more favourable CGT treatment under the proposed rules.

Strategies retirees may consider
The right strategy will depend on your personal situation. The goal should not be to simply “spend down” assets to chase the pension. The goal should be to structure your retirement assets in a way that supports your income, lifestyle and long term financial security.

Below are some areas that may become more important.

1. Reviewing assets held outside super
Investments held personally, jointly, through family trusts or in other non-super structures may be more exposed to the proposed minimum CGT rules.
This could include:

• Investment properties
• Share portfolios
• Managed funds
• Exchange traded funds
• Family trust investments
• Other growth assets held outside super

For retirees with large unrealised gains, the timing of selling assets may become much more important.
Before selling any investment, it is worth reviewing:

• The expected capital gain
• Your taxable income in the year of sale
• Whether the asset is held personally, jointly or through a trust
• Whether superannuation could be used more effectively
• Whether you may qualify for a part Age Pension
• Whether the proposed rules are likely to apply to your situation

2. Making better use of superannuationSuperannuation remains one of the most tax effective retirement structures in Australia.
For many retirees, investment earnings in pension phase can be tax free up to the relevant transfer balance cap. This can make super far more attractive than holding long term growth assets personally.
Depending on your age, contribution history and available caps, you may be able to move more money into super before retirement or in the early years of retirement.
This could include:

• Non-concessional contributions
• Downsizer contributions
• Concessional contributions
• Carry forward concessional contributions
• Spouse contribution strategies
• Rebalancing between personal investments and super

The key is to plan early. Leaving this until the year you retire can limit your options.
3. Considering the family homeBecause the family home is generally exempt from the Centrelink assets test, some retirees consider using surplus funds to improve, renovate or upgrade their home.
This may reduce assessable assets for Age Pension purposes while also improving lifestyle.
Examples may include:

• Renovating the home
• Improving accessibility
• Completing maintenance
• Upgrading to a more suitable home
• Making the property safer for later retirement

However, this strategy needs to be approached carefully. Moving house can involve stamp duty, agent fees, legal costs, moving costs and emotional stress. Renovations can also run over budget.
Spending money on the home purely to qualify for more Age Pension may not always be the best financial decision.
4. Gifting to children or familySome retirees may think about giving money to their children earlier, especially if their adult children are trying to buy a home or reduce debt.
Gifting can reduce your available assets, but Centrelink has strict rules.
In general, gifts above the allowable limits can continue to be counted as assessable assets for up to five years. This means giving away large amounts shortly before applying for the Age Pension may not have the immediate effect people expect.
There is also a bigger issue: once the money is gifted, you no longer control it.
Before making large gifts, retirees should consider:

• Future aged care costs
• Medical costs
• Home maintenance
• Emergency funds
• Longevity risk
• Family relationship issues
• Whether they may need the money later

Helping children is a personal decision, but it should not come at the expense of your own retirement security.
5. Using annuities or other retirement income productsSome lifetime income products may receive favourable Centrelink treatment. In certain cases, this can help improve Age Pension eligibility while also providing more certainty of income.
These products can be useful for some retirees, particularly those who want guaranteed income, but they are not suitable for everyone.
The trade off is usually reduced flexibility and access to capital.
Before using an annuity or lifetime income product, it is important to understand:

• How much income it will pay
• Whether payments are indexed
• How Centrelink will assess it
• Whether capital can be accessed later
• What happens on death
• Whether it suits your broader retirement plan

6. Prepaid funerals and funeral bondsPrepaid funeral arrangements and certain funeral bonds can reduce assessable assets for Centrelink purposes.
This may be useful for some retirees who want to put money aside for future funeral costs while also improving their Centrelink position.
However, this should be considered as a small part of the overall plan, not the main strategy.
7. Holding more assets in a younger spouse’s superWhere one member of a couple is under Age Pension age, their superannuation in accumulation phase may not be assessed by Centrelink until they reach Age Pension age.
This can sometimes help the older spouse qualify for a part Age Pension earlier.
This strategy can be effective, but it needs to be structured carefully. You need to consider contribution caps, preservation rules, access to funds, tax, estate planning and the younger spouse’s retirement timeline.
The biggest risk: chasing the pension at all costsThe Age Pension is designed as a safety net. It should not be the only focus of retirement planning.
Trying to reduce assets simply to qualify for a small pension can create unintended problems.
You may end up with:

• Less flexibility
• Lower investment returns
• Less access to capital
• Reduced ability to fund aged care
• Less money available for emergencies
• A strategy that does not suit your lifestyle

The better approach is to ask:
How do we structure your retirement assets so you have the right balance of income, tax effectiveness, flexibility and long term security?
Sometimes that may involve improving Age Pension eligibility. Sometimes it may not.
Why advice matters before the rules changeThe proposed CGT changes may make retirement planning more complex, particularly for people who:

• Own investment properties
• Hold shares or managed funds outside super
• Have large unrealised capital gains
• Are close to Age Pension age
• Are close to the part pension cut off
• Have money split between super and personal investments
• Are considering selling assets in retirement
• Have a family trust
• Want to help adult children financially

The key is to plan before you are forced to act.
A well structured retirement plan can help you understand:

• Whether you may qualify for a part Age Pension
• How your assets are assessed by Centrelink
• Whether selling assets could create unnecessary tax
• Whether superannuation contributions are available
• Whether your investments are held in the right structure
• How to balance tax savings with lifestyle needs
• Whether your estate planning needs to be reviewed

Final thoughtsThe proposed CGT changes may make part Age Pension planning more valuable for some retirees, but the strategy needs to be handled carefully.

Qualifying for a small Age Pension could potentially provide meaningful benefits, especially if it helps reduce exposure to the proposed 30% minimum CGT rate.
However, retirees should avoid making major decisions until the final rules are confirmed.
Before selling assets, gifting money, renovating, moving funds into super or changing ownership structures, it is worth getting advice that considers your full financial position.
At TRL Financial Solutions, we help clients make informed decisions around retirement planning, superannuation, Centrelink and investment structures.
If you are approaching retirement, already retired, or concerned about how the proposed CGT changes may affect you, now is a good time to review your strategy.
Need help reviewing your retirement plan?
Speak with TRL Financial Solutions about your super, investments, Age Pension eligibility and tax planning options.
General advice warning: This article contains general information only and does not take into account your personal objectives, financial situation or needs. Before making any financial decision, you should consider whether the information is appropriate for you and seek personal financial advice. Tax rules and Centrelink rules can change, and you should also seek advice from a registered tax adviser where required.