Jayson Forrest is the editor of Financial Planning Magazine.
The January 1 2017 changes to the Assets Test thresholds and the Assets Test taper rate, which are used by the Government to determine Age Pension payments for seniors, have seen about 330,000 Australians lose all or part of their Age Pension payments.
While these changes are now in force, there are steps that part pension recipients can still make to limit the reduction of their Age Pension going forward.
But firstly, what do the changes mean to you?
From 1 January 2017, the current Assets Test thresholds are:
Single homeowner – $250,000
Single non-homeowner – $450,000
Couple homeowners – $375,000
Couple non-homeowners – $575,000
With changes to the Asset Test thresholds come changes to the taper rate, which is the rate at which the Age Pension reduces as assets increase.
From 1 January 2017, the taper rate has doubled from $1.50 a fortnight to $3.00 a fortnight. This means that the maximum Age Pension a person can receive will be reduced by $3.00 per fortnight for every $1,000 of assets they hold above the Assets Test threshold (not including the family home).
For example, retired couple Bill and Mary are both aged 68 and own their own home. They have $823,000 in total assets and currently receive a part Age Pension of $500 per fortnight. If their assets remain unchanged, they will lose their Age Pension altogether.
However, it’s not all bad news.
If you have had your part pension payment reduced as a result of the changes, there are still a number of steps you can take to limit its reduction going forward. These involve identifying investment strategies that can help reduce your overall level of assessable assets.
Potential strategies include:
Bringing forward capital expenditure and home improvements/renovations;
Purchasing a funeral bond;
Prepaying funeral expenses;
Superannuation fund contributions on behalf of a spouse who is below Age Pension age;
Gifting (up to $10,000 annually and $30,000 over five years);
* Purchasing an annuity;
For aged care residents:
– paying a refundable accommodation deposit instead of a daily accommodation payment; and
– selecting a room with better features and paying a higher refundable deposit.
It’s worth noting that if you are in aged care accommodation, the changes to the tests around the Age Pension may also affect your Government subsidised aged care fees. This is because your income, including your pension, affects your fees. This is something to be aware of and specialised advice should be sought.
However, to cushion the blow of these changes, seniors who have lost their pension payments will still receive a Health Care Card and those over pensionable age will also get a Commonwealth Seniors Health Card without having to meet income requirements.
These concession cards allow access to benefits like bulk billing and discounted medicines, as well as other potential discounts.
To better understand how these latest changes to the Assets Tests threshold and taper rate will affect you, your Age Pension and investment strategies, please consult a qualified financial planner.
Subscribe for updates
Yes! I want tips and guidance to improve my financial wellbeing delivered straight to my inbox.