Knowing ALL The Rules

Warwick Rowell, Sunday 13 July 2008

One in seven retired Australians earn too much from their superannuation and investments to qualify for a pension. And one in seven retired Australians depend entirely on the pension. This leaves five of the seven getting a partial pension, mainly because either their income or their assets exceed the limits.

Your personal home is not a part of the assets test for the pension. And any money you receive from any member of your family for board and lodging is not considered in assessing your income. So under the present rules it would be quite legitimate for some retired parents to build a house big enough for them and their family, to spend lots on making it a low maintenance house that was cheap to run, and have the children pay all the outgoings and food bills. The parents may then qualify for, or be paid a higher pension. They would still have the security of owning their own home, while helping their children. This assistance could be even more powerful if the children are paying a large mortgage on another house out of post tax income. These considerations may be worthy of reflection if you are looking at how to set up your extended family in a rambling house on Rosneath Farm.

Our generation faces a different economic climate than any recent generation. Until now, middle class occupations, job opportunities and life time careers, have continually expanded, all of which we tended to take for granted. This situation led to the fairly pervasive belief that letting our children get out and struggle on their own was good for them, and that the bit of hardship they faced would serve them in good stead, and so on. And most parents saved their surpluses for their retirement, in relatively passive investment devices.

If things are different now, and the independent struggle might not lead to long term security, and there is only a much smaller chance of earning a good income, then perhaps we need to reconsider the use of family assets, and focus them more on building a shelter of some kind for our children and their families. Maybe even buying them a job, in one way or another. Supporting children while they study until they are in their mid twenties is an acknowledgement that it isn’t as easy as it used to be. A crucial question we have to ask is “Are investments in education and better qualifications direct enough to be relied on?” Another question that follows from this is “Can we combine the vigour, stamina and new knowledge of our children with our assets and experience to build a family business?”