Don’t be caught offside when the new pension rules kick in
23 Nov 2016
The Government is making two changes to means testing for Social Security pensions (including the Age pension), which will take effect from 1 January 2017.
If you currently receive a part pension, or plan to retire soon, you need to be aware of how the changes could impact your entitlements. For some, the changes will create a cashflow shortfall and may have a significant impact on their standard of living.
What’s changing?
From 1 January 2017, there will be an increase in the lower assets test threshold and an increase in the assets test taper rate. This includes:
1. Increasing the lower assets test threshold
The lower assets test threshold refers to the level of assessable assets that can be owned before pension entitlements are affected. Pension payments are reduced once assets exceed this level.
It is estimated this change will result in around 50,000 part pensioners qualifying for a full pension. Those already on a full pension will be unaffected by this change.
2. Increasing the assets test taper rate
The taper rate is the rate at which pension entitlements reduce where assessable assets exceed the lower threshold. The rate will be increased from $1.50 to $3 per fortnight for every $1000 in assessable assets above the asset threshold.
As a result, the upper threshold is effectively lowered, meaning the pension cuts off at a lower level of assets. It is estimated that approximately 91,000 part pensioners will no longer qualify for the pension and a further 235,000 will have their part pension reduced.
The upper threshold will be depend on a variety of conditions, including your relationship status, home-ownership status and whether entitlements are asset tested or income tested.
What about income tested pensioners?
While the changes are more directly relevant for assets tested pensioners, if you have your pension entitlement determined under the income test, you may still be affected. It’s possible the changes could result in you becoming assessed under the assets test and having your entitlements reduced or cancelled entirely.
Concession cards
Pensioners who lose their entitlement as a result of the changes will cease to be eligible for the Pensioner Concession Card (PCC). They will, however, automatically qualify for the Commonwealth Seniors Health Card (CSHC) or if less than pension age, the Health Care Card (HCC), without the need to satisfy the usual income requirements.
People considering retirement
The impact of these changes is not limited to retirees. If you are considering retirement, you should also review your retirement needs and objectives to see if they are still achievable under the new rules.
Your desired retirement income and living standards may no longer be achievable. Expectations may have to be reduced, your expected retirement age may have to be increased or you may be required to maintain casual or part-time employment to supplement your income needs.
What can be done?
There are a number of potential strategies that may help reduce the impact of the new rules. Strategies that can reduce an individual’s, or couple’s, assessable assets, include:
• Couples with one partner who has not reached pension age could consider spousal super contributions.
• Expenditure on the main residence (eg a new bathroom or air conditioning system).
• Certain prepaid funeral expenses, cemetery plots or funeral investments (or bonds) of up to $12,500.
• Singles and couples can gift $10,000 of assets per financial year, with a limit of $30,000 in any rolling five financial year period.
Find out more
As every situation is different, it’s important your game plan is both appropriate and sustainable for your circumstances. A financial adviser can help identify a strategy for you. To get your plans in place, speak to your RI Advice Group financial adviser today.
T: 1800 738 473
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