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Is the 2017 Federal budget a winner for retirees?

02 June 2017

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.

Giving homeowners aged 65+ a big carrot to sell and boost their super isn’t the only measure that has made retirees take notice of the 2017 federal budget announcement. The return of the pension concession card will give many seniors a very welcome boost to their household budget.

Savings across the board

Many who lost their age pension payments at the beginning of the year can now look forward to having their pension concession card back again. Changes to thresholds for the assets test introduced on 1 January 2017 left some age pension recipients without any further entitlement to payments. And for those who had only been receiving a minimal payment before, going without their concession card could have made a much more significant impact on their household income than losing their pension.

“The pensioner concession card is something of a golden egg for retirees,” says Matt Torney, CFP® and Financial Adviser at Muirfield Financial Services in Geelong. “When you have substantial pharmaceutical costs – say if you’re a diabetic or on regular medication – the concession card can save thousands every year on your prescriptions. And you’ll also get discounts on everything from vehicle registration and stamp duty to your council rates, water and energy bills. All these savings, large and small can really add up and make a difference to your household budget and income needs in retirement.”

Super boost from home sale proceeds

One of the biggest headlines of the 2017 federal budget package is the new “super boost” incentive for homeowners aged 65+ to sell their family home and free up larger properties for potential buyers in the process. “A person aged 65 or over will be able to make a non-concessional contribution to superannuation of up to $300,000 from the proceeds of selling their home from 1 July 2018,” says FPA CEO Dante De Gori CFP®. “The aim of this incentive is to encourage the baby boomer generation to sell, freeing up larger houses for younger families upgrading into more suitable homes.”

So is this government incentive a big enough draw card for retirees to up sticks and move to a new location or smaller home and pocket the difference in their super fund? According to Matt Torney, it’s more of a nice bonus if you had already been planning to sell, rather than a reason to put your house on the market after July 2018. “For a lot of people, moving house is an emotional decision rather than a financial one,” says Matt. “And putting a large sum into super isn’t going to benefit everyone. It depends on your marginal tax rate and your age pension entitlement too. It’s important to remember that the home you live in is exempt from the assets test for the age pension. Once you sell, the proceeds are going to add to your asset base and could affect your Centrelink payments. Of course investment earnings from the sale of your home could offset that loss of income from your pension. And there are other sale costs to consider, such as agents’ fees. So you really need to run the numbers to determine whether selling is the right thing for your situation.”

Time for a retirement review?

Another budget announcement that may cause concern among retirees is the new 0.6% levy on the five major Australian banks. If you have super invested with the banks, either as a shareholder or through a fund or index, you might be wondering whether your returns or the value of your portfolio are going to be affected. “The bank levy is likely to be passed on to customers and shareholders in some form” says Matt, “although a reduction in overall profits as a result of the levy could have some impact on the dividend profile of the banks, even a modest dividend of 5% is still better than the income you could expect from a term deposit right now. So investment in the banks is probably still a better option than saving with them.”

So while there’s no reason to make dramatic changes to your portfolio, the new levy demonstrates the importance of diversification as a key part of any investment strategy. “This policy change is a good example of why we always encourage diversification in the asset classes and industries you’re backing with your capital,” says Matt. “If you have a lot of money in one type of investment, like the big 4 banks, then you’re exposed to risks that new legislation can bring to a certain sector or type of business or asset.”

Whatever you plan to be doing in retirement, a CERTIFIED FINANCIAL PLANNER® professional can offer valuable advice on preparing for a secure financial future and managing your super and income needs.