Just what is the financial impact of age pension changes scheduled to start from New Year’s Day 2017 for certain categories of retirees?
Brian Hrnjak from GHR Accounting Group is looking ahead to consider who will bear the brunt of the new legislation.
Announced in the 2015 Budget, these changes passed into legislation with the agreement of the Greens in June last year and come into force on New Year’s Day.
As with most pension changes, it depends on your married or single status and home ownership status as to how these changes will affect you. In the case of these asset test and taper rate changes, the government is:
- Increasing the lower asset test threshold – so that an estimated 170,000 pensioners earn around $30 more per fortnight. The main winners in this category are coupled homeowners with $375,000 in assets – on these numbers they appear to able to improve their outcome by more than $3,000 per annum.
- Lowering the top asset test threshold – so that an estimated 91,000 pensioners will no longer qualify for the aged pension. The main losers in this category are coupled homeowners with assets over $814,000 – they will lose all access to the age pension as well as associated fringe benefits (although they do have access to the senior’s health care card). Cash wise this is a loss of around $14,000 per annum.
This is the pointy end of what politicians call ‘budget repair’ or at the very least it’s the start of the ‘end of the age of entitlement’, as our former Treasurer and now ambassador to the US mildly put it.
Anyone likely to be caught up in the changes should seek advice before January about possible solutions but some of the tools in the toolkit include:
- Contributing funds to a spouse’s super account where the spouse is under pension age and only one partner is receiving the pension
- Revaluing assets (downward) for Centrelink purposes – cars, furniture, collectibles
- Gifting amounts to children – up to $10,000 per annum and a maximum of $30,000 over five years
- Using lifetime annuities that have reducing capital values
- Investing differently to make up the lost pension income
- Improving the principal place of residence.
Improving the home can result in a better age pension outcome. If a couple finds themselves at the asset limit of $814,250 they need to find an investment proposition that yields better than 7.8% return, under these new rules, $100,000 spent on the family home will result in $7,800 per annum of additional pension income plus access to the age pension fringe benefits.
If you thought it was hard to find a tradie in Sydney now just wait until the New Year.
GHR Accounting Group
Shop 8, 9-15 Central Ave, Manly 2095
02 9979 4300 | email@example.com | www.ghr.com.au
Brian Hrnjak is a Director of GHR Accounting Group Pty Ltd, Certified Practising Accountants, Authorised Representative of Premium Wealth Management Ltd, ABN: 11 091 418 861 Australian Financial Services Licence Number 237498 and licensee in charge of AltRE Real Estate. Offices: Suite 12, Ground Floor, 20 Bungan Street Mona Vale NSW 2103 and Shop 8 9 – 15 Central Ave Manly NSW 2095, Telephone: 02 9979-4300, Webs: www.ghr.com.au and www.altre.com.au Email: firstname.lastname@example.org
These comments are of a general nature only and are not intended as a substitute for professional advice. This article is not an offer or recommendation of any securities or other financial products offered by any company or person.