The age pension in Australia refers to income support provided by the government for residents currently aged 65 and over. How much money you receive depends on your income and circumstances.
The new age pension rules will impact the level of assets you can hold and still be eligible for the age pension. They take effect on January 1, 2017 so there’s plenty of time to make changes to your finances if they affect you.
How are the asset test rules changing?
There is a new assets threshold test limit to qualify for a full age pension. Assets included are anything you own apart from your principal residence – including cash, your super, shares and investment properties. The threshold will rise from $286,500 to $375,000 for homeowner couples and from $202,000 to $250,000 for single homeowners. This rise means that more people will be eligible to receive a full age pension.
But there are other changes that could affect people who have assessable assets significantly higher than the new limits.
Under the current rules the pension rate is reduced by $1.50 each fortnight for every $1000 above the assets limit – this is called a taper rate. For example, if you have $50,000 in assets over the limit, your fortnightly pension is reduced by $75.
When the new rules come into effect the pension rate will reduce more quickly. For every $1000 above the assets limit your fortnightly pension will drop by $3. So if you are $50,000 over the assets limit your fortnightly pension will drop by $150.
What that means is some people who are eligible for a part-pension under the current rules may find that they aren’t eligible to receive any pension – or the pensioner concession card – under the new rules.
To receive a part pension from January 1, 2017 a homeowner couple must have no more than $823,000 of assessable assets. The upper limit is currently $1.15 million. For single homeowners the upper limit will drop from $775,500 to $547,000.
What can you do?
Is there anything you can do to lessen the impact of the new rules?
Andrew Dunkerley, Manager of Financial Advice and Education at NGS Super, says one strategy could be handy for couples with an age difference. As long as the younger person is still under pension age, money that would otherwise be an assessable asset for the older person could be contributed to super for the younger person and it then won’t count as an asset.
“For example, with a husband who is 66 and a wife who is 60, then generally the husband could contribute to a super account in her name, and that could result in larger age pension benefits for him,” he says. “But this strategy will mostly only hold good until the wife reaches pension age.”
Another possibility to reduce your assessable assets could be home renovations. If you’ve ever thought about a new kitchen or bathroom – now could be the time.
Likewise, if you want to help your children with expenses such as buying a property or education, you could gift money to them. You can gift a maximum of $10,000 each financial year up to a maximum of $30,000 over a rolling five-year period without impacting your pension.
If you are yet to reach age pension age, you could gift a larger amount. As long as it’s at least five years before you reach pension age it won’t be included in your pension application.
It may sound a little morbid but another option could be to direct money into a funeral bond.
“Investment in an annuity product could also result in higher age pension entitlements, depending on your situation,” says Andrew.
Don’t spend for the sake of it
Reducing assets by increasing expenditure is best suited to those on the cusp of pension entitlement and only if you are planning to spend that money in the first place.
Andrew cautions against large-scale spending to secure an age pension, saying: “Deprivation of assets just for the sake of it is not always a smart thing. Spending your money on a world cruise and extensive home improvements simply so you can reach the upper limit of assets may not be in your best interests in the long term.”
If you need help preparing for the age pension changes, call NGS Financial Planning on 1300 133 177.
Information provided in this blog may have changed since the time of writing. You should confirm the information is current before relying on it.