Changes to the age pension rules – are you ready?

Last year the Government legislated an increase to the assets test thresholds and the assets test taper rate from 1 January 2017. If you are retired or approaching retirement, these changes could have an impact on your retirement plans.

Increase in the assets test thresholds

The first change to the assets test relates to the threshold above which a pensioner’s entitlement will start to reduce. The increase in the assets test thresholds from 1 January 2017 will enable approximately 50,000 part-pensioners to qualify for the full pension under the new rules, according to the Government.

Increase in the taper rate

The second change will effectively reverse changes to the taper rate introduced in 2007, increasing the current taper rate from $1.50 to $3 per fortnight per $1,000 of assets over and above the assets test threshold. This means that the amount of assets a pensioner can have on top of their family home and still receive a part pension (assets test upper threshold) will be reduced.

The combined effect of these changes

The combined effect of these changes is that while some pensioners will see either no change to or an increase in their age pension, many will see their age pension reduced, possibly to zero. The Government estimates that this measure will see 91,000 part-pensioners lose their age pension completely while another 235,000 part-pensioners will see their age pension reduced.

The table illustrates the likely impact of these changes to a pensioner couple who own their own home.

A pensioner couple who own their own home with less than $451,500 of assessable assets will see either no change, or an increase, in their age pension. Such pensioners with assets above $451,500 will see their age pension fall – in this case by up to as much as $14,467 per year.

Single pensioners and non-homeowners may also be affected, but at different levels of assets.

Understand your options

It is important to understand how the changes can affect your particular situation and the impact on your overall retirement objectives. There may be opportunities to help reduce the impact of these changes and enhance your overall cash flow.

Options you may consider include:

■■ reducing expenditure in retirement to meet lower age pension payments

■■ increasing withdrawals from investments

■■ assets test reduction ‘strategies’ (eg superannuation fund contributions on behalf of a spouse who is below the age pension age, gifting within the allowable limits, purchasing a funeral bond, bringing forward capital expenditure, home improvement etc), or

■■ purchasing a lifetime annuity.

Source: Challenger

For more information about Centrelink changes, speak to Wynyard Park Private Wealth.