How does living in a caravan park affect my pension?

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I was just wondering if you could clarify whether I was a homeowner for aged pension purposes. We live in a caravan park which has a number of elderly people over fifty living in cabins. We bought our cabin 18 months ago for $135,000 and currently pay management fees of $275 per fortnight, plus electricity, gas and insurance. I thought we were classified as homeowners, but now not so sure.

My co-author on Downsizing Made Simple, Rachel Lane, explains that people who live in a caravan park are classified as homeowners but can qualify for Commonwealth Rent Assistance based on the amount you pay in “site fees” – the rent for the land your home sits on.

Thanks to the quirks of the pension system, living in a caravan park and not a retirement village could be costing you up to $321 per fortnight.Credit: Michele Mossop

The rules you are referring to typically apply to retirement villages and granny flats. Where your home in the caravan park is substantially less than the $242,000 it can mean that you are worse off pension-wise from the different rules.

In your case, the fact that you are living in a caravan park and not a retirement village could be costing you up to $321 per fortnight in pension. It’s just one of many pension anomalies.

I hope you can clear something up for me. I always thought that by people spending more money it would boost the economy, but interest rates are going up to stop this from happening. Does not spending money harm the economy as people lose jobs businesses close down and form a domino effect?

The Reserve Bank has an inflation target of around 2 per cent per annum, but inflation is running closer to 5 per cent, and they are trying to bring it down. Inflation is a destroyer of the value of your money because if it’s 5 per cent, the thousand dollars you have in the bank has a real value of only $950 in 12 months. The theory is that increasing interest rates gives people less money to spend, and also puts a dampener on the property market as fewer people can qualify for a mortgage.

As you pointed out the economy is boosted when people spend money and this demand for goods and services is one of the main factors that causes inflation. The problem in Australia is so much of our inflation is caused by circumstances that are hard to control. These include massive construction projects in all states and increasing demand caused by immigration. There is no easy answer.

I have read “only the person who has lived in the property at some stage can make a downsizer contribution”. My understanding is that a partner who was not on the title and who has not lived there, can also make a downsizer contribution. The ATO website doesn’t mention the partner having to have resided. Your comments would be appreciated.

John Perri of AMP Technical tells me that it all comes down to being eligible for some/all of the main residence exemption, which is one of the key criteria for making downsizer contributions:

The legislation says the proceeds (capital gain or loss) from the sale of the home are either exempt or partially exempt from capital gains tax (CGT) under the main residence exemption, or the home would be entitled to the exemption if it was a CGT rather than a pre-CGT asset (acquired before 20 September 1985).

Each member of a couple must be assessed individually whether they are eligible for a full or part CGT main residence exemption on the disposal of a dwelling.

Where only one person is on title, the other person will be taken to be on title for this purpose, however, only the person(s) who has lived in the property at some stage can make a downsizer contribution using the sale proceeds. This is because a person cannot be eligible for the main residence CGT exemption if they have never lived in the property.

I read an article stating that when one decides to retire they should convert their super into pension mode otherwise yearly earnings are taxed. They gave an example of a $400,000 super balance earning 5 per cent pa. If one is retired and the $400,000 is in accumulation mode the $20,000 earnings would attract $3,000 in tax whereas if in pension mode it would not. Is the $3,000 somehow “hidden” in other costs against the net returns of the super fund?

It is correct that funds in accumulation mode pay up to 15 per cent tax per annum on earnings and pension funds are tax-free. The tax is just part of the expenses of the accumulation fund and is reflected in a lower annual percentage return.

Readers should note that this is not a one-size-fits-all strategy – it’s common for there to be significant age differences between couples with one partner being of pensionable age and the other partner being way under pensionable age.

Money in superannuation accumulation is not counted by Centrelink, until a person reaches pensionable age, unless they start a pension from the fund. In these cases, if the under-age person moves to pension mode their partner may lose a big part of their pension.

Noel Whittaker is the co author of Downsizing Made Simple with fellow finance expert Rachel Lane. The new edition of Downsizing Made Simple is available through the website here where you can also find a range of useful exercises, checklists and calculators to help you on your downsizing journey. Email: [email protected]

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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