Could you lose your pension? Services Australia’s warning to downsizing homeowners
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Downsizing your home might seem like a simple step towards financial freedom or a more manageable lifestyle.
However, the decision comes with its own set of complexities, especially when it comes to your pension.
What many might not realise is that this move could trigger consequences that impact more than just your living situation.
Downsizing a family home is often on the cards as people grow older, particularly for Baby Boomers who may be seeking a simpler life, smaller living space, or even financial relief.
However, before making the leap, there was an important consideration: how downsizing could affect your pension.
Selling your property for a smaller one could free up significant funds—yet those proceeds may impact the government benefits you receive.
Your eligibility for Age Pension depends heavily on the value of both your assets and income.
Previously, your family home was exempt from being counted towards the asset test for the Age Pension, but if you downsize, that may change.
If you sell your home for $1 million and purchase a new property for $700,000, the remaining $300,000 is considered an asset and will be factored into the asset test immediately.
For up to two years, the money allocated for buying or building your new home could be excluded from the asset test, allowing you to maintain Age Pension eligibility.
However, the funds from the sale of the family home will be subject to deeming at the lower rate.
Hank Jongen, General Manager and Agency Spokesperson for Services Australia, explained that deeming is used to determine the income generated from financial assets.
This income is then added to other sources of income to determine your Age Pension rate.
Alternatively, you could place that $300,000 into your superannuation, which might help in managing your pension eligibility.
More details about this strategy are explored later.
It was always wise to assess the asset test limits before proceeding with a move.
This way, you could work out how much of the sale proceeds wouldn’t be put towards purchasing a new home, providing an estimate of how much your pension could be impacted.
Don’t forget to factor in the hidden costs—moving expenses, agent fees, and stamp duty, insurance, and conveyancing fees for any new purchase.
Some individuals also decided to renovate or build, which would further reduce available liquid assets.
Here are the full pension asset limits as of January 2025:
- Homeowner (Single): $314,000
- Non-homeowner (Single): $566,000
- Homeowner (Couple, combined): $470,000
- Non-homeowner (Couple, combined): $722,000
Part pension asset limits were as follows:
- Homeowner (Single): $695,500
- Non-homeowner (Single): $947,500
- Homeowner (Couple, combined): $1,045,500
- Non-homeowner (Couple, combined): $1,297,500
Importantly, these figures represented the combined total for both individuals in a couple. If your assets exceed these limits, your Age Pension would decrease.
For those uncertain about how downsizing might affect their government benefits, they could have contacted Services Australia’s Financial Information Service for assistance.
Another potential strategy involved making a downsizer contribution to superannuation.
If you were aged 55 or older and had owned your home for at least 10 years, you could have contributed up to $300,000 from the proceeds of the sale to your super. Couples could both contribute, effectively doubling this amount.
The downsizer contribution was a non-concessional one, meaning it wasn’t taxed again upon entry into super.
Additionally, it didn’t count towards the non-concessional contribution cap, offering more flexibility in managing superannuation.
From 1 July 2024, the concessional contributions cap was $120,000 per year, so it was important to keep track of any contributions to avoid excess tax penalties.
With so many Baby Boomers considering downsizing, how do you think the potential impact on pensions could affect your plans? We’d love to hear your thoughts in the comments below.
However, the decision comes with its own set of complexities, especially when it comes to your pension.
What many might not realise is that this move could trigger consequences that impact more than just your living situation.
Downsizing a family home is often on the cards as people grow older, particularly for Baby Boomers who may be seeking a simpler life, smaller living space, or even financial relief.
However, before making the leap, there was an important consideration: how downsizing could affect your pension.
Selling your property for a smaller one could free up significant funds—yet those proceeds may impact the government benefits you receive.
Your eligibility for Age Pension depends heavily on the value of both your assets and income.
Previously, your family home was exempt from being counted towards the asset test for the Age Pension, but if you downsize, that may change.
If you sell your home for $1 million and purchase a new property for $700,000, the remaining $300,000 is considered an asset and will be factored into the asset test immediately.
For up to two years, the money allocated for buying or building your new home could be excluded from the asset test, allowing you to maintain Age Pension eligibility.
However, the funds from the sale of the family home will be subject to deeming at the lower rate.
Hank Jongen, General Manager and Agency Spokesperson for Services Australia, explained that deeming is used to determine the income generated from financial assets.
This income is then added to other sources of income to determine your Age Pension rate.
Alternatively, you could place that $300,000 into your superannuation, which might help in managing your pension eligibility.
More details about this strategy are explored later.
It was always wise to assess the asset test limits before proceeding with a move.
This way, you could work out how much of the sale proceeds wouldn’t be put towards purchasing a new home, providing an estimate of how much your pension could be impacted.
Don’t forget to factor in the hidden costs—moving expenses, agent fees, and stamp duty, insurance, and conveyancing fees for any new purchase.
Some individuals also decided to renovate or build, which would further reduce available liquid assets.
Here are the full pension asset limits as of January 2025:
- Homeowner (Single): $314,000
- Non-homeowner (Single): $566,000
- Homeowner (Couple, combined): $470,000
- Non-homeowner (Couple, combined): $722,000
Part pension asset limits were as follows:
- Homeowner (Single): $695,500
- Non-homeowner (Single): $947,500
- Homeowner (Couple, combined): $1,045,500
- Non-homeowner (Couple, combined): $1,297,500
Importantly, these figures represented the combined total for both individuals in a couple. If your assets exceed these limits, your Age Pension would decrease.
For those uncertain about how downsizing might affect their government benefits, they could have contacted Services Australia’s Financial Information Service for assistance.
Another potential strategy involved making a downsizer contribution to superannuation.
If you were aged 55 or older and had owned your home for at least 10 years, you could have contributed up to $300,000 from the proceeds of the sale to your super. Couples could both contribute, effectively doubling this amount.
The downsizer contribution was a non-concessional one, meaning it wasn’t taxed again upon entry into super.
Additionally, it didn’t count towards the non-concessional contribution cap, offering more flexibility in managing superannuation.
From 1 July 2024, the concessional contributions cap was $120,000 per year, so it was important to keep track of any contributions to avoid excess tax penalties.
With so many Baby Boomers considering downsizing, how do you think the potential impact on pensions could affect your plans? We’d love to hear your thoughts in the comments below.
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