Ted and Sandra are a retired couple. Ted is aged 70 and used to play for Essendon in the 1960s, but when he retired from football, he worked as a courier. Sandra is aged 67 and worked at Qantas until she was laid off recently because of the COVID19 pandemic.

After Sandra was unemployed, they both decided to sell their house in Sunbury and move to Echuca, in Northern Victoria where they built a new home.

Their assets are now:

• Family home valued at $752,000 with no mortgage.
• Term deposits valued at $52,000 with ANZ Bank,
• Contents worth $35,600
• Motor cars (two) valued at $46,000
• Share portfolio valued at $168,230
• Superannuation valued at $426,954 (Ted)
• Superannuation valued at $135,652 (Sandra)

All assets other than the superannuation funds are jointly owned.

Both superannuation funds were converted into account-based pension funds when they retired.

Their current income is made up of:

Interest and dividend income of $8,932 per annum

Account based pension to Ted of $21,344

Account based pension to Sandra of $6,783

Total income for the year was $37,059

You are their financial adviser. Ted and Sandra have a zoom meeting with you in which they have asked you for advice on the following matters:

1. Are they entitled to the age pension?
2. Should Ted retain the life insurance policy in his superannuation fund? The premium is currently $22,890 per annum and comes out of his superannuation fund
3. The income is not enough to live on. Is there some scheme whereby the Government can lend us or give us extra money to live on?
4. Can they draw down on their home to access the equity as they would like to provide their daughter Larissa a lump sum, so she has a deposit to buy her own home. They are not keen on a traditional mortgage to the bank where they have to make regular repayments on the mortgage and would be interested in other options available.

REQUIRED:

a) Calculate under the assets test and the income test how much, if any, of the Age Pension they would be entitled to and what amount the Government if any would pay them as an age pension. (5 marks)

b) As both Ted and Sandra have no debts, should Ted keep his life insurance cover under his super fund, reduce it, or cancel it altogether? (3 marks)

c) Does the Government provide additional funds to people like Ted and Sandra who need additional income to live on? (4 marks)

d) What are the other options available to Ted and Sandra to use the equity in their home to provide the funds to Larissa? (3 marks)

(5 + 3 + 4 + 3 = 15 marks)

Formula and Fact Sheet:

PENSION AGE ELIGIBILITY Date of birth Pension Age Eligibility 1 July 1952 to 31 December 1953 65 12 1 January 1954 to 30 June 1955 66 1 July 1955 to 31 December 1956 66 1/2 1 January 1957 and later 67 Assets Test (as of March 2020) Status Lower Limit (Full Partial Pension Upper Limit (No Pension) Pension) If total assets: up to between from Single: Homeowner $263,250 $263,250 - $578,250 Non- $473,750 $473,750- $788,750 Couple (combined), either partner eligible: Homeowner $394,500 $394,500- $869,500 Non- $605,000 $605,000- $1,080,000 Reduction factor: $3/fortnight for every $1,000 worth of assets above Lower Limit up to Income Test (fortnightly) (as of March 2020) Status Full Pension Partial Pension No Pension If total Fortnightly between from Single $174 $174- $2,066.60 $2,066.60 Couple (combined) $308 $308 - $3,163.20 $3,163.20 Reduction factor: Single - 50 cents for each dollar above $174 Couple (combined) - 50 cents for each dollar above $308 Status Single Couple Deeming Rates (as of March 2020) Amount Deemed Rate Amount Up to $51,800 0.25% Over $51,800 Up to $86,200 0.25% Over $86,200 Deemed Rate 2.25% 2.25% Basic Pension Rates (fortnightly) (as of March 2020) Single $860.60 Couple $648.70 each partner (or $1,297.40 if both partners eligible) + Pension Supplement (fortnightly) (as of March 2020) Statu Full Pension Partial Pension Singl $69.60 $37.40 Coup $52.50 each partner ($105.00 $28.20 each partner ($56.40 + Energy Supplement (fortnightly) (as of March 2020) Single: $14.10 Couple (each partner): Couple (combined): PENSION AGE ELIGIBILITY Date of birth Pension Age Eligibility 1 July 1952 to 31 December 1953 65 12 1 January 1954 to 30 June 1955 66 1 July 1955 to 31 December 1956 66 1/2 1 January 1957 and later 67 Assets Test (as of March 2020) Status Lower Limit (Full Partial Pension Upper Limit (No Pension) Pension) If total assets: up to between from Single: Homeowner $263,250 $263,250 - $578,250 Non- $473,750 $473,750- $788,750 Couple (combined), either partner eligible: Homeowner $394,500 $394,500- $869,500 Non- $605,000 $605,000- $1,080,000 Reduction factor: $3/fortnight for every $1,000 worth of assets above Lower Limit up to Income Test (fortnightly) (as of March 2020) Status Full Pension Partial Pension No Pension If total Fortnightly between from Single $174 $174- $2,066.60 $2,066.60 Couple (combined) $308 $308 - $3,163.20 $3,163.20 Reduction factor: Single - 50 cents for each dollar above $174 Couple (combined) - 50 cents for each dollar above $308 Status Single Couple Deeming Rates (as of March 2020) Amount Deemed Rate Amount Up to $51,800 0.25% Over $51,800 Up to $86,200 0.25% Over $86,200 Deemed Rate 2.25% 2.25% Basic Pension Rates (fortnightly) (as of March 2020) Single $860.60 Couple $648.70 each partner (or $1,297.40 if both partners eligible) + Pension Supplement (fortnightly) (as of March 2020) Statu Full Pension Partial Pension Singl $69.60 $37.40 Coup $52.50 each partner ($105.00 $28.20 each partner ($56.40 + Energy Supplement (fortnightly) (as of March 2020) Single: $14.10 Couple (each partner): Couple (combined)