What do the changes to the pension assets test mean for you?
Under the changes which came into effect on 1 January 2017 some retirees will have received an increase in their age pension. Many others, however, will have experienced a cut, or they lost the pension altogether. This results from changes to the assets test aimed at reducing the federal budget deficit. It also addresses what some people see as an excessively generous test that allows some retirees with more than a million dollars in financial assets to receive a part age pension.
What’s changed?
Previously, pensions were reduced by $1.50 per fortnight for every $1,000 of assessable assets above the assets-test free amount for a full pension, currently $209,000 for a single home-owner and $296,500 for a couple home-owner.
On 1 January 2017 this ‘taper rate’ increased to $3.00 per $1,000 of excess assets. Pension payments now phase out more quickly and the limit on assets up to which some pension is payable drops significantly.
On a positive note, the assets threshold for a full pension increased to $250,000 for a single home-owner and $375,000 for a couple, so some part-pensioners have received higher payments.
The winners
Mike and Hope are an example of a couple that have benefitted from the changes. They own their home and have financial assets totalling $370,000. This exceeds the previous threshold for a full pension by $73,500, so their pension was reduced by $110.25 to a combined sum of $1,212.15 per fortnight.
However, on 1 January 2017 the threshold for the full pension increased to $375,000. With assets below this threshold Mike and Hope will find themselves receiving the full pension of $1,322.40 per fortnight, including supplements.
The losers
It’s a different story for John and Ann. As homeowners with assets of $750,000 they currently share a fortnightly pension of $642.15. But with the higher taper rate, their pension dropped to just $197.40. That’s an additional reduction of $444.75 per fortnight or more than $11,500 per year.
It’s predicted that 300,000 retired Australians will lose some or all of their pension as a result of this change. Around 50,000 less wealthy pensioners will be better off, while current recipients of a full pension will see no change.
What are the options?
Clearly the change to the assets test will adversely affect a large number of retirees and create a significant incentive to reduce assessable assets. With the family home remaining exempt from the assets test, if you wish to continue receiving a part pension, strategies that could be considered include spending on renovations to make an existing home more comfortable, or upgrading to a higher value home. Assets can also be reduced by gifting (care required here) or through spending on travel and lifestyle.
However, it’s important to consider your overall situation, as maximising age payments at the risk of reducing assets may not be the best way to achieve long-term financial security. It’s crucial that you ask us for qualified advice before taking action. Please contact us on 1300 135 573 to discuss.
For more information:
Department of Social Services website www.dss.gov.au Your Guide to Deeming Information and Changes Booklet
Parliament of Australia website www.parlinfo.aph.gov.au Social Services Legislation Amendment (Fair and Sustainable Pensions) Bill 2016
Department of Human Services www.humanservices.gov.au Changes to the pension assets test
