Countdown to Age pension changes

In less than 12 months’ time, new laws will reduce how much Centrelink pension many people receive. Ann Bayliss, Specialist Retirement Adviser at Merideon Wealth Strategies, explains the revised asset test.

In January 2017 the Federal Government’s changes to the Age Pension come into effect and the changes are dramatic. Some couples who currently receive over $14,000 per annum will lose their pension entirely. Many others will have their pension reduced between $1,000 and $13,000 per year.  These changes also affect people receiving other pensions like Disability Support and Carer Payment.

When assessing a person for a pension, Centrelink uses two formulas – the Income Test and the Assets Test to evaluate who should receive a payment and what proportion of the full amount they deserve. By tinkering with the assets test, the Government has reduced the amount of pension higher wealth individuals will receive from the 1^st of January.

The Asset Test looks at your accumulated wealth and takes into account the market value of everything a person owns such as their superannuation and investments such as shares and rental properties. It also includes the fire sale value (not insured value) of cars, boats, caravans and household contents.

Importantly, the asset test still does not include the family home. Even someone who owns a $3 million home on the canals, can qualify for the full age pension if they have less than $375,000 in other assets. That’s right, a couple could still be receiving $1,307 a fortnight in pension whilst sitting on their balcony in Dalkeith overlooking the Swan River.

Under the new changes the value of your home will not affect pension entitlements, however seniors will need to be a lot poorer than previously before they will receive a pension.

Currently a couple with their own home can have up to $1,163,000 in other assets outside of their home and still get a small part pension. It is not much, but it means they get the pensioner concession card, which provides a range of savings on everything from prescription medication to rates and bills.

Couples without a home can have even more, up to $1,312,000 before they lose the pension altogether.

In 2017, however things get much tighter for “wealthier” Australians.

The home-owning couple will now lose their pension and concession card once they have assets in excess of $823,000. If they had $650,000 their pension will drop by more than $7,742 per year. The Government estimates that about 320,000¹ Aussies will be worse off under the new rules.

The good news is there should be around 170,000¹ who will be better off. These include the home-owning couples who have less than $450,000 in assets.

But what do you do if you are one of the 320,000 who will be sitting around on New Years Eve this year knowing that the next day as well as a potential hangover you may have a $14,000 a year hole in your budget?

Well most people in this situation will be either contemplating chasing higher returns (which means greater risk) or start drawing down on their capital (which means watching their nest egg get smaller and smaller) to maintain their current level of income.

The first option is dangerous, particularly when secure investments like Term Deposits are returning less than 3 per cent.  A couple with assets of $800,000 set to lose $13,592 a year will need to chase returns of 5-6% to replace this income.  That’s double the term deposit rates.

The second option is gut-churning for someone, who has spent their lifetime building a nest egg, to watch their life savings erode to pay their day-to-day living expenses.

But there is a third option, BEAT THE ASSET TEST!  Make sure that on 1 January 2017, your assets come in under the new thresholds.  But how do I do that you say?

Thankfully, there are a number of potential strategies that could be put in play to reduce the impact of the new rules.

Strategies which reduce an individual’s or couple’s assessable assets, like gifting, non-assessed assets, bringing forward planned spending or expenditure on the main residence, may potentially help. As every situation is different, it’s important that your game plan is both appropriate and sustainable for your circumstances.

Don’t get caught offside when the rules change. Understand how they will affect you and get good advice on the best way for you to maximise your entitlements.

A good place to start is by attending the upcoming seminar on Wednesday, 2^nd March 2016 at 3.30pm. The seminar will explain more about the changes and who will be affected as well as explaining in depth the different strategies that can reduce the impact on your income. Visit www.centrelinkchanges.eventbrite.com.au to find out more and secure your place or call Merideon Wealth on 9583 5299.

For those that prefer a more one-on-one approach, Merideon is also offering complimentary 45 minute Pension Health Checks to identify if you will be affected and identify some ways to improve your retirement income. Call 9583 5299 to book yours.

¹The figures used in this article are based on Government Media Release found at http://www.liberal.org.au/latest-news/2015/05/07/fairer-access-more-sustainable-pension