Downsizing Your Home in Bendigo: How It Affects Your Age Pension
For many retirees in Bendigo and across Central Victoria, downsizing from the family home is a practical step as circumstances change. If you are still weighing up whether downsizing is the right move for you personally, our article on downsizing and whether it's right for you covers the lifestyle side of that decision. This article looks specifically at what happens to your Age Pension once you decide to sell.
Why downsizing changes your assessable assets
Your principal home is generally exempt from the Age Pension assets test while you live in it. Once you sell, the proceeds become an assessable asset, at least until you use them to purchase a new home or place them into certain exempt arrangements. Depending on the sale price and your other assets, this shift can move you from a full pension to a part pension, or affect your eligibility altogether.
The home sale proceeds exemption
If you intend to use the proceeds from selling your home to buy, build, repair, or renovate another home, Centrelink may apply a temporary exemption to those funds for up to 24 months. A further extension of up to 12 months may be available if you can show you are making genuine efforts to secure a new home and are experiencing delays outside your control, taking the maximum exemption period to 36 months. During this exemption period, the proceeds are still subject to deeming under the income test, though the portion earmarked for your new home is generally deemed at the lower deeming rate only.
This exemption exists to give people time to complete a purchase without being penalised for a temporary gap between selling and buying. It does not remove the funds from consideration altogether, so it is important to understand how deeming applies during this window.
Downsizer contributions into superannuation
Separately from the Centrelink rules, the downsizer contribution scheme allows eligible Australians aged 55 or older to contribute up to $300,000 from the sale of their home into superannuation, or up to $600,000 combined for a couple. To qualify, the home generally needs to have been owned for 10 years or more, and the contribution must be made within 90 days of settlement.
It is worth noting that money moved into superannuation through a downsizer contribution does not stop being assessable for the Age Pension. Superannuation balances are assessed under the same asset and income test rules discussed in our article on the current Age Pension asset test thresholds, so downsizing and contributing to super does not automatically reduce your assessable assets. In some cases, it may increase them.
Where debt issues can arise
We regularly see situations where a downsizing decision was not reported to Centrelink promptly, or where the temporary exemption period was misunderstood. This can lead to an overpayment being identified later, which then needs to be repaid. Our earlier article on avoiding a Centrelink debt covers this in more detail, and the same principles apply here: timely and accurate reporting is the best way to avoid complications.
Planning ahead
Understanding the pension implications before you sell means there are fewer surprises once the sale settles. If you are still deciding whether downsizing suits your circumstances more broadly, our earlier article on the topic is a good starting point before working through the financial detail here.
If you are considering downsizing and want to understand how it may affect your Age Pension, our Centrelink Services team can talk you through your specific situation. Contact us to arrange a consultation, or speak with our SMSF team if superannuation contributions are also part of your planning.
How downsizing your home affects your age pension FAQ
Will selling my home affect my Age Pension?
It can. Downsizing or otherwise selling your home is one of the more common triggers for a pension reassessment. Your principal home is generally exempt from the assets test while you live in it, but once sold, the proceeds become assessable, which may change your pension amount.
Is there a grace period if I am buying another home?
Centrelink may apply a temporary exemption to sale proceeds intended for a new home, generally for up to 12 months, with an extension available in some circumstances. Deeming still applies to the funds during this period.
Does making a downsizer contribution to super reduce my assessable assets?
Not automatically. Superannuation balances are still assessable for the Age Pension, so moving sale proceeds into super does not remove them from the assets test.
What happens if I don't report the sale promptly?
Delayed or missed reporting is a common cause of Centrelink debts being raised later. Timely, accurate reporting is the best way to avoid this.
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