CHANGES TO THE AGE PENSION ARE COMING – HOW WILL YOU BE AFFECTED?

• 300,000 people will have their Age Pension cut, 100,000 people will receive no pension!
• Couple homeowner who now have assets of between $823,000 – $1.16 million will lose Centrelink Part Age Pension from 01.01.2017. It means a loss of Age Pension of around $13,500 per annum.
• Couple / homeowner with assets of up to $450,000 will generally be “better off” than a couple with $900,000 in assets!
• Couple homeowner with assets of less than $451,500 will receive a higher pension.
• If you lose your Age Pension and over age 65 you may still receive Commonwealth Seniors Healthcare Card.

From 1 January 2017 government changes to the Age Pension are likely to reduce pensioner entitlements. It’s important that you understand how the changes could affect you.

What are the Changes?

From 1 January 2017 the asset test free areas and the taper rate will increase. The asset test free area is the amount of assets above which allowances are not paid and pensions are reduced.

The asset test free areas are to increase to

• $250,000 for a single homeowner
• $375,000 for a homeowner couple
• $450,000 for a single non homeowner
• $575,000 for a non-homeowner couple

Increase in the “Taper Rate”

The taper rate is the rate at which the Age Pension starts to reduce when the level of assets increase. From 2017 the taper rate will increase from $1.50 a fortnight to $3 a fortnight. This means the maximum age pension a pensioner can receive will be reduced by $3 per fortnight for every $1,000 of assets they hold above the Assets Test threshold.

How the Changes could affect your Age Pension

The higher Assets Test threshold will generally mean:

• Age Pension recipients with an asset value of “around” the thresholds are likely to see an increase in their Age Pension entitlement and
• Asset pension recipients with assets above the threshold are likely to see a reduction in their Age Pension – in some cases to “zero” as a result of the increased taper rate.

A couple homeowner can have total assets of up to $823,000 (excluding their principal place of residence) and receive a very small amount of Age Pension. Couple/homeowners with assets in excess of $823,000 from January 2017 will not receive any Age Pension. Currently the same couple/homeowner can have assets of up to $1.1 million and still receive a very small Part Age Pension.

At its most drastic level, married homeowners with savings in excess of $823,000 stand to lose $13,500 of Age Pension per annum. Couples in this situation would have draw down on their capital to make up for the loss of the Part Age Pension.

What are Some Key Considerations?

As a result of the changes, for every $1,000 reduction in assessable assets, clients may receive an additional $3 per fortnight of pension (currently $1.50 per fortnight of pension).

Consequently, any strategies for reducing assets become more important and should be considered prior to January 2017.

Some relevant asset test reduction strategies include contributing to superannuation in the name of a spouse under age pension age, improving a principal home, gifting early or within allowable limits and long term guaranteed income annuities with a depleting asset value.

Commonwealth Seniors Healthcare Card (CSHC)

Fortunately, clients who lose their pension entitlement on 1 January 2017 as a result of the changes will be automatically issued with a CSHC or a Health Care Card for those under Age Pension age. They will be exempt from the usual income test requirements for these cards immediately.

Residential Aged Care Members

For residents in residential / homecare, receiving lower or no Age Pension could translate to lower care fees. However, receiving less or no pension will put pressure on cashflow. Further, to maintain their pension, affected members will have further incentive to maintain and rent out their home rather than sell it and have residual sale proceeds accumulating within a bank account.

Concessional Centrelink and Aged Care treatment apply when members rent out their home, and if they pay their accommodation payments via instalments.

On the other hand, members with available assets could pay a lump sum refundable deposit (RAD) or increase their RAD, rather than paying periodic accommodation payments/contributions. RADs are exempt from Centrelink asset testing but may increase the means tested fees.

Conclusion

More than 300,000 Age Pensioners will have their Age Pension entitlements cut with just under 100,000 of those affected Australians losing “all” Age Pension entitlements, taking effect from January 2017.

We are currently providing strategies to persons that will be “badly affected” and fall into the category of where they will lose all of their pension or part pension. There are strategies available that will benefit persons who are now receiving a Part Age Pension in the future.

We encourage you to call us and make a time to discuss these strategies before 30 June 2016.

More About -- > David Watkins

David Watkins, has been providing advice to clients since 1987. He is a Certified Financial Planner, a member of the Financial Planning Association (FPA), and Superannuation Professionals Association of Australia (SPAA).Google Plus