Starting on the January 1 2017, those with assets above a certain level will have their pension either cut more drastically or eliminated altogether. Those with assets (not including the family home) above a certain level will also suffer cuts. Some industry commentators estimate that over 300,000 pensioners will have their pension reduced, while 100,000 will lose it altogether.i Quite recently there have been a few client’s seeing us in our Oran Park and Parramatta locations to discuss the impact to benefit changes.
What’s the big change?
First, let’s look at the change to the assets test. The good news is that the assets test free areas will actually increase, so some people with lower total wealth will become eligible for a full pension. The not-so-good news is that anyone with assets above the new upper limit will lose their part pension.
|
Current full pension asset limit |
New rule (1/1/17) |
| Single homeowners |
$209,000 |
$250,000 △ |
| Single non-homeowners |
$360,500 |
$375,000 △ |
| Couple homeowners |
$296,500 |
$375,000 △ |
| Couple non-homeowners |
$448,000 |
$575,000 △ |
|
Current part pension asset limit |
New rule (1/1/17) |
| Single homeowners |
$791,000 |
$547,000 ▽ |
| Single non-homeowners |
$943,250 |
$747,000 ▽ |
| Couple homeowners |
$1,175,000 |
$823,000 ▽ |
| Couple non-homeowners |
$1,326,500 |
$1,023,000 ▽ |
The taper rate will also change from $1.50 to $3.00 for every $1,000 of assets owned over the asset threshold – the full pension asset limit.ii This means that, if you’re set to be at the upper end of the range between the full pension limit and the part pension limit, your actual pension payment amount will be reduced.
In summary:
- More people with a low level of assets will be eligible for full pension
- Some people with just over the full pension asset limit will get slightly higher payments
- Some people with just under the new part pension asset limit will have their payments reduced
- People with more than the part pension asset limit (effectively created by the new taper rate) will lose their part pension
What can you do?
There are ways you may be able to reduce your assessable assets. One is to make improvements to your principal home. Funds spent on home improvement and renovations generally aren’t counted in your assets test. This is essentially because you’re converting it from an assessable asset (cash) to an exempt asset (your principal home).iii
So, if you’ve been considering redoing your kitchen or bathroom anyway, or perhaps getting a pool or even a garden makeover, now might be the time to do it.
Another option may be to give away some of your money or other assets, whether it’s to family and friends or to charity. It’s important to make sure that anything you give away fits within Centrelink’s gifting rules, which are the same for singles and couples combined – $10,000 in one financial year, or $30,000 per five financial years.
It’s also important to look at the changes from the point of view of your overall retirement budget. For example, age pensioners who lose their pension as a result of the changes will automatically get a Health Care Card and a commonwealth Seniors Health Card.iv These cards help save money via lower health care costs, prescription costs, and some other concessions.
We understand that these changes may be confusing. If you’re still unsure about how your entitlement or income will be affected, please contact us on (02) 9188 1547 or email ronald.pratap@rpwealthmanagement.com.au
ii https://www.humanservices.gov.au/corporate/budget/budget-2015-16/budget-measures/disability-and-carers/social-security-assets-test-rebalance-assets-test-thresholds-and-taper-rate/
iii https://www.humanservices.gov.au/customer/enablers/assets/
ivhttps://www.humanservices.gov.au/corporate/budget/budget-2015-16/budget-measures/disability-and-carers/social-security-assets-test-rebalance-assets-test-thresholds-and-taper-rate/
