Ask Noel: Pension Loans Scheme

Ask Noel: Pension Loans Scheme

I read somewhere that money borrowed under the Pension Loans Scheme would not be affected provided that people spent and did not hoard their money. Does saving for a car or home repairs constitute hoarding? If so, the money might be deemed by Centrelink. An interest of 5.25 per cent plus deeming doesn’t make this such a great deal either.

A lot of people on the full pension who own their own home get by, but have trouble saving for large purchases. This scheme, which has been extended to include them, doesn’t really help with that as you can’t take a lump sum. I can’t see those who want to leave something to their kids being interested. Also, nursing home care is not cheap, so how will the bond work if your house is mortgaged?

Money borrowed under the PLS is generally not subject to means testing. However, if a person saves their PLS payments, the savings may be considered a financial investment. The investment is subject to the assets test and normal income test deeming rules.

If a person uses the money saved from PLS payments to purchase an asset such as a motor vehicle, the asset is assessable under the pension assets test. If the fortnightly PLS loan is used to meet day-to-day expenses, it is not assessable under the pension means tests.

My son has some shares held for him in trust, with the name of the shares being in the form of Parent. They were bought for him at the depth of the global financial crisis and have made a reasonable capital gain.

Now that he has turned 18 is it possible to transfer the shares into his name only, without having a tax event occur? If so, would I do an off market transfer or is there a different mechanism to change the name on the shares?

If the shares have only ever been held as trustee, and the trustee at all times has kept the investment separate from their own funds, there should be no CGT on transfer to a child when he reaches adulthood. Just make sure you involve your accountant every step of the way. An off-market transfer should be fine.

Two years ago I took a voluntary redundancy at age 60 and started work again a few months later. All of my $400,000 super is taxable. How can I use a re-contribution strategy to reduce the taxable portion of my super? Is there a disadvantage in doing so? I plan to work for another year or two. I have other income that will allow me to delay drawing on my super for a while after I retire.

A re-contribution strategy involves withdrawing funds from your superannuation fund and then re-contributing them as a non-concessional contribution. Because the non-concessional contribution consists entirely of a non-taxable component the effect of the strategy is to reduce part of the taxable element in your fund and increase the non-taxable component. Based on the information you have given me, you have fulfilled a condition of release and should be able to withdraw all your superannuation tax-free as you are over 60 years of age. By taking advantage of the bring-forward rules you could then contribute $300,000 as a non-concessional contribution, which would change the mix of your fund from 100% taxable to 25% taxable. There is no contributions tax on non-concessional contributions. Just make sure you take advice because it can be a bit tricky and getting it wrong can be very costly.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance.