Age Pension Changes 1 January 2017
From 1 January 2017 onwards, there will be changes to the assets test for the age pension and this means there will be some winners and some losers.
Following the recent Federal Budget announcement, the Government has now passed law to give effect to changes to Centrelink’s asset tests.
What are the changes?
The calculation of age pension entitlements is based on an income and assets test. Both tests are calculated independently but the test which provides the lower pension entitlement is the test that determines the amount payable by the Government. In relation to the asset test, the Government has announced two changes that will take effect from 1 January 2017.
Firstly, the assets test limit to qualify for a full age pension will increase from $296,500 to $375,000 for home-owner couples (and from $209,000 to $250,000 for homeowner singles). This means that more Australians will be eligible for the full age pension.
Secondly, the pension amount you lose for owning assets above the full age pension threshold will increase. This is also referred to as the ‘taper rate’. Currently, the pension rate reduces by $1.50 per fortnight for every $1,000 over the above limits. This means, if you’re $10,000 over the limit you have your pension reduced by $15 per fortnight. When the new changes take effect, your pension may be reduced by $3 per fortnight for every $1,000 of assets you own over the full age pension threshold.
These changes mean the ‘upper limit’ of assets that a retiree can own while still being eligible to receive a part-pension will decrease from $1,178,500 to $816,000 for homeowner couples and from $793,750 to $542,500 for homeowner singles. Therefore, because of their assets, certain retirees will receive a lower age pension entitlement or be cut-off from the pension altogether from 1 January 2017.
The Government has not made any changes to the assessment of the family home and it continues to be excluded from the assets test. So, a pensioner couple who own their home and have over $816,000 in assessable assets may lose their part-pension of approximately $14,102 per year.
Do you lose your pension concession card if your pension is cut?
As a result of these changes, if you lose your pension entitlement on 1 January 2017 you will automatically receive the Commonwealth Seniors Health Card (CSHC) and the Low Income Health Care Card (LIHCC), available once you have reached age pension age. These cards give you discounts on prescription medicines through the Pharmaceutical Benefits Scheme (PBS). You may also be entitled to other concessions in areas such as health and transport, depending on your state or territory.
What are your options?
The changes are a win for pensioners with lower levels of assets but those with higher levels of assets may lose out.
Importantly, as these changes don’t come into effect until 1 January 2017, you have time to plan for the changes. There are still some legitimate avenues available to reduce your assessable assets for age pension purposes.
For further information and advice about how these changes may affect you, contact your Northern Inland branch to organise to speak with a financial planner.
Bridges Financial Services Pty Limited (Bridges). ABN 60 003 474 977. ASX Participant. AFSL No 240837. This is general advice only and does not take into account your objectives, financial situation and needs. Before acting on this advice, you should consult a financial planner.