As many Baby Boomers consider downsizing their homes to unlock retirement funds, it is crucial to understand how this decision might impact their Age Pension entitlements. Services Australia has issued a warning regarding the impact of asset limits on pension eligibility.
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Here’s a breakdown of the latest asset limits for full and part Age Pension as of January 2025:
Asset Limits for a Full Age Pension
| Your Situation | Homeowner | Non-Homeowner |
|---|---|---|
| Single | $314,000 | $566,000 |
| A couple, combined | $470,000 | $722,000 |
| A couple, separated due to illness, combined | $470,000 | $722,000 |
| A couple, one partner eligible, combined | $470,000 | $722,000 |
Asset Limits for a Part Age Pension
| Your Situation | Homeowner | Non-Homeowner |
| Single | $695,500 | $947,500 |
| A couple, combined | $1,045,500 | $1,297,500 |
| A couple, separated due to illness, combined | $1,233,000 | $1,485,000 |
| A couple, one partner eligible, combined | $1,045,500 | $1,297,500 |
It is important to note that if you are part of a couple, these limits apply to your combined assets rather than each individual’s assets.
How Selling Your Home Affects Your Pension
Many retirees downsize to free up cash, but selling your principal residence and holding onto the proceeds could push you above the Age Pension asset test limits. While searching for or building a new home, you are still classified as a homeowner, and your pension may be adjusted accordingly if your assets exceed the thresholds.
If you are uncertain about how your pension will be impacted, you can access free financial guidance from Services Australia’s Financial Information Service.
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Could Super Save Your Pension?
A strategic option for those aged 55 and over is making a downsizer contribution into superannuation, allowing individuals to contribute up to $300,000 from the sale of their home. Couples can each contribute up to $300,000, significantly increasing their retirement savings without affecting the non-concessional contributions cap.
Eligibility for Downsizer Contributions
To qualify for a downsizer contribution:
- You or your spouse must have owned the home for at least 10 years before selling.
- The home must be located in Australia and not be a caravan, houseboat, or mobile home.
- The contribution must be made within 90 days of receiving the sale proceeds.
A key advantage of this contribution is that it does not count towards your non-concessional contributions cap, ensuring that it won’t immediately impact your total superannuation balance. However, once the financial year ends, your super balance is re-calculated, which could affect your pension eligibility.
Understanding Super Contribution Caps
The non-concessional contributions cap is the maximum after-tax contribution you can add to your super each year without incurring extra tax. As of 1 July 2024, the non-concessional cap is set at $120,000 per financial year.
Next Steps: Get Financial Guidance
If you are planning to downsize and want to explore how it may impact your Age Pension, it’s highly advisable to seek expert financial advice. Services Australia’s Financial Information Service offers free consultations to help retirees make informed decisions about their financial future.
By understanding the rules surrounding pension eligibility, asset limits, and downsizer contributions, Baby Boomers can make well-informed decisions that maximize their retirement income while preserving their Age Pension benefits.
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