Important changes totheage pension in 2017

From 1 January 2017, there are some important age pension changes that could impact your benefits and warrant some pre-emptive action.

What’s changing?

The lower asset threshold that determines your eligibility for the full age pension will increase. This threshold varies, depending on your relationship status and whether or not you own a home. It’s also indexed periodically by the Government. The assets free test will increase to:

  • $250,000 for a single home owner
  • $375,000for a homeowner couple
  • $450,000 for a single non-homeowner
  • $575,000 for a non-homeowner couple

In addition, the age pension payable will be reduced by $3, for every $1,000 you hold in assets above this threshold. The current reduction amount, known as the ‘taper rate’, is $1.50 per $1,000. This will lower the asset test upper threshold after which no pension is payable.

Howwill these changes impact your entitlements?

Your age pension entitlements are assessed under both an income and assets test. The impact of these assets test changes on your entitlement to age pension will depend on a range of factors.

Assessable assets / Current Age Pension Indexed / New Age Pension / Reduction in Age Pension
$300,000 / $34,865 / $34,923 / $(59)
$400,000 / $30,965 / $32,973 / $(2,009)
$451,500 / $28,956 / $28,956 / $0
$500,000 / $27,065 / $25,173 / $1,892
$600,000 / $23,165 / $17,373 / $5,792
$700,000 / $19,265 / $9,573 / $9,692
$800,000 / $15,365 / $1,773 / $13,592
$823,000 / $14,467 / $0 / $14,467
$900,000 / $11,465 / $0 / $11,465
$1,000,000 / $7,565 / $0 / $7,565
$1,100,000 / $3,665 / $0 / $3,665
$1,200,000 / $0 / $0 / $0

If we look at the current and new asset test thresholds for a homeowner couple as above for example, the lower threshold will increase from $296,500 to $375,000 on 1 January 2017. This means more people will be eligible to receive a full pension under the asset test assessment. However, the income test may override the asset test (depending on the type of assets and income) and reduce their pension payment.

In contrast, the asset test upper threshold after which no pension is payable will reduce from $1,178,500 to $816,000 for a homeowner couple on 1 January 2017, resulting in many pensioners losing entitlement to pension altogether.

What to do next?

The thresholds in the above example apply exclusively to home-owning couples and the dollar values would be different if you are single and/or not a home-owner. The best way to determine how you may be affected is to obtain a current list of your assets as recorded at Centrelink and make an appointment with me to review your financial position and determine if any strategies can be implemented to improve your entitlement to the pension going forward. The earlier you do this, the more you may be able to take advantage of any suitable strategies.

Strategies you may benefit from could include:

  • improving or upgrading your home
  • pre-paying your funeral expenses, and
  • gifting money within the permitted limits to relatives or others; gifting more than 5 years prior to age pension age
  • take advantage of spouse under pension age
  • purchasing long term annuities with a depleting asset value
  • revise assets recorded at Centrelink.

To find out how the changes could impact you and discuss strategies that may assist you, contact Michael Scorer on08 9256 1400.

Important information and disclaimer

This publication has been prepared by Michael Scorer of Total Financial Solutions.

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Accordingly, reliance should not be placed on the information contained in this document as the basis for making any financial investment, insurance or other decision. Please seek personal advice prior to acting on this information.

Information in this publication is accurate as at the date of writing (Sep 2016). In some cases the information has been provided to us by third parties. While it is believed the information is accurate and reliable, the accuracy of that information is not guaranteed in any way.

Opinions constitute our judgement at the time of issue and are subject to change. Neither the Licensee nor any member of the NAB Group, nor their employees or directors give any warranty of accuracy, not accept any responsibility for errors or omissions in this document.

Any general tax information provided in this publication is intended as a guide only and is based on our general understanding of taxation laws. It is not intended to be a substitute for specialised taxation advice or an assessment of your liabilities, obligations or claim entitlements that arise, or could arise, under taxation law, and we recommend you consult with a registered tax agent.