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As the number of retirees grows and international travel becomes more problematical and expensive because of the pandemic, there is a surge in the number of grey nomads travelling Australia.
After all, what could be simpler than taking your caravan to drive around our country? No lost luggage, no fluctuating fares, and the freedom to do what you want.
However, there is a potential problem: the effect on your age pension.
A reader tells me that they use their son’s home as a base for mail and have rented out their house for three years, to gain some income as they travel.
However, they are concerned that their pension may be negatively affected because, once they move out, it would become assessable under the pension assets test. Their home is worth $900,000 which, together with their superannuation, would be enough to wipe out their pension eligibility.
This issue certainly needs thinking about if becoming a grey nomad is on your bucket list.
A Centrelink spokesman tells me that you can be absent from your home for up to 12 months and still be considered a homeowner, which means your principal place of residence is exempt from the pension assets test.
If you are overseas and unable to return because of circumstances beyond your control, this period may be extended. However, except for this circumstance, once the 12 months have expired, your house would be counted for the assets test. And this could be enough to make you lose the pension.
If you resume occupancy of your home within 12 months, and later leave the home again, a new 12-month exemption period begins.
However, it is important to ensure that you actually live in the house; don’t just drop in intending to establish a brief period of residence to extend the exemption period. You might obtain a one-year holiday from the assets test, but you could be caught out by the income test.
If you are away from your home for a long period, such as a year, it makes sense to rent it. However, you need to remember that your super is subject to deeming, which provides a notional income that must be added to the rent you receive on your house.
Take the example of Jack and Jill, who have a recreational vehicle worth $150,000, $500,000 in super and have rented out their home for $800 a week.
The super would be deemed to be earning $361 a fortnight. Added to their rental income of $1600 a fortnight, this takes their income for pension income test purposes to $1961 a fortnight.
Luckily, the income test is fairly generous for a couple – they can earn up to $3313 a fortnight before they lose eligibility for any pension. So, Jack and Jill can continue to receive a combined aged pension of $676 a fortnight – and all the concessions that go with it.
As you can see, becoming a grey nomad need not mean you lose the pension. It’s really a matter of planning your affairs with care.
You need to arrange to re-occupy your home before the 12 months’ grace period expires. And figure out if it is worthwhile to rent your home, or whether your deemed income from super and rent combined is enough to negate pension eligibility.
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.