We won the lottery, but lost our pension. Could we have prevented this?

We are a couple aged 73 and 67, both retired and receiving the full aged pension. We recently won $1,000,000 in the lottery and have placed that money in a basic interest-bearing savings account with our bank. We intend to use that money to buy a new house and sell our existing one but may just renovate. The windfall has stopped our pension completely until we spend the money, which is all good and well. But could we have prevented the pension loss in any way?

I think you should consider yourself extremely fortunate and enjoy the money. The full age pension for a couple is $43,732 a year – you could have a far better lifestyle living off capital instead of relying on welfare.

Winning the lottery will wipe out your pension income, but you should still consider yourself fortunate.

However, the asset cut-off point for a couple is $1,031,000 so when you start to use capital and the balance falls below that amount you may start to receive some pension.

Just don’t spend to get a pension. Every $100,000 spent increases the pension by just $7800 a year for an asset-tested pensioner. It would take 12 years to get your money back.

I have thoroughly searched online but haven’t found a clear answer. I’m retired and unhappy with the high fees being charged on my pension. Are there consequences of switching funds once in the pension phase? I’ve been told I must revert the funds to the accumulation phase and then switch back to the pension phase with the new fund, but could that affect the tax-free status of my pension (seeing as you can only contribute to your pension once)? For context, I’m currently with Colonial First State and am interested in Vanguard. I’ve called them both about this – unfortunately, I have not received a reassuringly clear answer.

John Perri of AMP Technical says there should be no issue with switching funds once in the pension phase. Technically, the assets backing the pension will move to accumulation “briefly” once the original pension is commuted; on entry into the new pension fund, it will momentarily hit the accumulation phase before moving into the pension phase, but there should be no change overall.

If I top up my super, is it wise to contribute it as a concessional contribution so I can claim a tax deduction for this year, lowering my tax bracket from the second tier to a lower tier? Does this mean I will need to pay additional tax if I have to withdraw it later? I am 66 now.

It’s usually best to contribute as a concessional contribution if you can because then the contribution is coming from pre-tax dollars. There will be a 15 per cent entry tax on the contribution but as you are over 60, all withdrawals will be tax-free.

There is a 17 per cent death tax on the taxable component of your superannuation left to a non-dependent – a spouse is always dependent in this context. However, this can be eliminated by withdrawing the funds tax-free before death.

I have a 1970 apartment which has shown very limited capital growth over the past 10 years. The question is whether to hold or fold – if I sell the apartment, I aim to deposit $360,000 (non-concessional contribution) into my super account. This will take my super balance – which is growing healthy – over the $1 million mark. Is there any point in keeping a property where there is no capital growth?

The key to success in real estate is to add value, which is difficult to do with an apartment. Unless you see a sudden upsurge in its potential, which is highly unlikely, it would make sense to sell it and contribute the funds to superannuation as you mention.

Just keep in mind that apart from the non-concessional contribution, you can now make a $30,000 concessional contribution to superannuation as a tax deduction, which may be applicable in your situation. That $30,000 limit a year includes any employer contribution.

Noel Whittaker is the author of Wills, Death & Taxes Made Simple and numerous other books on personal finance. Email: [e-mail]

• 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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