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Retirement

What does the 2018 Federal budget mean for my retirement?

15 May 2018

Money & Life team

Money & Life contributors draw on their diverse range of experience to present you with insights and guidance that will help you manage your financial wellbeing, achieve your lifestyle goals and plan for your financial future.

If you’ve retired, or you’re planning on retiring soon, find out what new pension and aged care measures announced in the recent Federal budget could mean for you.

Past federal budgets may have delivered more sweeping changes to superannuation policy and age pension entitlements than the Treasurer’s more recent announcement on 8 May. But the modest changes we heard still give retirees – and those about to retire – plenty to think about.

Here are some 18/19 budget highlights that could be important to your finances and lifestyle in retirement:

A bigger incentive to keep working

While you might look forward to life without a job, there can be benefits for your bank balance and well-being when you work part-time in retirement. And with the increase in the Pension Work Bonus allowance proposed in the budget, if you’re receiving an age pension, from 1 July 2019 you’ll be able to earn $300 per fortnight without your entitlement being affected. This is a $50 increase from the current threshold of $250 and self-employed retirees will also be eligible for the allowance going forward1.

This change to the Pension Bonus isn’t the only budget proposal encouraging older Australians to keep earning for longer. A raft of new services aimed at helping people aged 45-70 stay in the workforce were announced together with a five-year funding package. New support measures include funding of up to $2,000 for workers to take up reskilling or upskilling opportunities, with the Government contribution to be matched by the worker or their current employer2. This is good news for older people looking to start a whole new career later in life.

A last chance to boost your super balance

While working for longer gives many workers more time to save super for their retirement, people can end up missing out on super savings for all sorts of reasons. Being off work — or working part-time — can be your only option when you’re responsible for family care, fall ill or get made redundant.

To give people on the brink of retirement more time to boost their super savings, the government will introduce a change to the Work Test that applies to making super contributions after leaving work. Under the new proposal, an exemption from the work test for voluntary contributions will be available for people aged 65-74, in the first year that they do not meet the work test requirements. The exemption applies only for people with superannuation balances below $300,000 and the $25,000 annual cap on concessional contributions will still apply3.

Making the most of retirement income from your super

Even with a decent amount of super in your fund on retirement, making smart choices about using that money to create enough income for your lifestyle needs, and to last throughout retirement, is still important. Annuities, account-based pensions and property are just some of the main options available.

A new requirement for all super funds to form a strategy to help members meet their retirement income objectives was introduced in the budget4. Funds will also need to offer retirement products designed to provide income for the rest of the member’s life. For some members, the new approach could save a lot of the time, effort and uncertainty that often comes with making this important choice. However, it remains to be seen just how super funds will go about matching members’ needs with suitable products and solutions. “We’d expect that funds would need to consider different cohorts and, if appropriate, design different default strategies for each,” says Dimitri Diamantes, Policy Manager for the FPA.

Releasing equity in your home without selling

If you’re aged 65 or over and planning to sell your home, from 1 July 2018 you can put up to $300,000 from proceeds of sale into your super fund. This sum will not count towards annual limits that usually apply and you can still make the contribution even if it takes your super balance over the current $1.6 million lifetime cap5. This downsizing contributions measure was announced in last year’s federal budget and it certainly could make you think about selling up and moving, depending on your circumstances.

The budget announcement last Tuesday, on the other hand, included news about a different way to use equity in your home to supplement retirement income. Instead of selling, you can effectively ‘borrow’ from the government against the value of your home to supplement your Age Pension. This is the Pension Loans Scheme, and while it’s nothing new, the proposed change is to expand the scheme to everyone over Age Pension age, and increase the income stream amount to 150% of the Age Pension rate6. “This measure could potentially increase your social security payments up to the maximum age pension,” says Dimitri. “But bear in mind the money will need to be paid back with interest.”

Funding to catch-up with life expectancy 

There can be many reasons for not selling your home at this stage in life. A home where you’ve been for some time can be the place where you feel most comfortable, particularly if you have friends and family nearby. If you plan to be ‘ageing in place’ for the foreseeable future, you could become one of thousands of Australians applying for in-home care support7. In the budget, the government announced a number of measures to better support the well-being of older Australians, including funding for an extra 14,000 high level home care packages over that next four years and an extra 6,000 places before the end of this financial year8.

A budget that offers more choice for people in retirement can definitely be seen as a positive one. But it does highlight the importance of making the best decisions for your short and longer term income and lifestyle needs. Advice from a CERTIFIED FINANCIAL PLANNER® professional can guide you in choosing retirement income options and managing your cash flow and social security entitlements so you can enjoy retirement free from concerns about your finances.

 

Footnotes

1 FPA Budget Wrap, 9 May 2018, Page 8

2 FPA Budget Wrap, 9 May 2018, Page 8

3 FPA Budget Wrap, 9 May 2018, Page 8

4 FPA Budget Wrap, 9 May 2018, Page 7

5 ATO website, Downsizing Contributions into superannuation, https://www.ato.gov.au/Individuals/Super/Super-housing-measures/Downsizing-contributions-into-superannuation/

6 FPA Budget Wrap, 9 May 2018, Page 8

7 Dementia Australia, Media Release More than 100,000 Australians waiting for home care support “unacceptable” 2017, https://www.dementia.org.au/media-releases/2017/more-than-100000-australians-waiting-for-home-care-support-unacceptable

8 FPA Budget Wrap, 9 May 2018, Page 8