Important changes to the age pension in 2017

From 1 January 2017, there are some important age pension changes that could impact your benefits and warrant some pre-emptive action.

What’s changing?

The lower asset threshold that determines your eligibility for the full age pension will increase. This threshold varies, depending on your relationship status and whether or not you own a home. It’s also indexed periodically by the Government. To find the current thresholds visit humanservices.gov.au.

In addition, the age pension payable will be reduced by $3, for every $1,000 you hold in assets above this threshold. The current reduction amount, known as the ‘taper rate’, is $1.50 per $1,000. This will lower the asset test upper threshold after which no pension is payable.

How will these changes impact your entitlements?

Your age pension entitlements are assessed under both an income and assets test. The impact of these assets test changes on your entitlement to age pension will depend on a range of factors.

If we look at the current and new asset test thresholds for a homeowner couple for example, the lower threshold will increase from $296,500 to $375,000 on 1 January 2017. This means more people will be eligible to receive a full pension under the asset test assessment. However, the income test may override the asset test (depending on the type of assets and income) and reduce their pension payment.

In contrast, the asset test upper threshold after which no pension is payable will reduce from $1,175,000 to $818,0001 for a homeowner couple on 1 January 2017, resulting in many pensioners losing entitlement to pension altogether.

What to do next?

The thresholds in the above example apply exclusively to home-owning couples and the dollar values would be different if you are single and/or not a home-owner. The best way to determine how you may be affected is to make an appointment with your adviser to review your financial position and determine if any strategies can be implemented to improve your entitlement to the pension going forward. The earlier you do this, the more you may be able to take advantage of any suitable strategies.

Strategies you may benefit from could include:

  •  improving or upgrading your home
  • pre-paying your funeral expenses, and
  • gifting money within the permitted limits to relatives or others.

But great care should be taken when considering strategies that could dramatically lower your assessable assets, as they may be short-sighted. For example, if the income test deeming rates (which are at historically low levels) were to rise significantly, the benefits of reducing your assessable assets, could be reduced considerably.

To find out how the changes could impact you and discuss strategies that may assist you, please always feel welcome to contact us at any time.

(1) Actual cut-out thresholds are dependent upon the rate of pension payable and therefore the cut-out thresholds that will apply at 1 January 2017 are not yet known. We have assumed some indexation of the current maximum rate of age pension.

General Advice Disclaimer

This article contains general advice only, which has been prepared without taking into account the objectives, financial situation or needs of any person. You should, therefore, consider the appropriateness of the information in light of your own objectives, financial situation or needs and read all relevant Product Disclosure Statements before acting on the information. Whilst every care has been taken to ensure the accuracy of the material, Paradigm Strategic Planning or WealthSure Financial Services Pty Ltd will not bear responsibility or liability for any action taken by any person, persons or organisation on the purported basis of information contained herein. Without limiting the generality of the foregoing, no person, persons or organisation should invest monies or take action on reliance of the material contained herein but instead should satisfy themselves independently of the appropriateness of such action.

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