After being first announced in the 2015 Federal Budget, there are some changes to the age pension that will come into effect on 1 January 2017.

Here Matthew McCabe from Judge Financial Planning looks at what an increase or decrease in pension will mean, especially those that could have their pension entitlement removed completely.

What are the changes?

From 1 January 2017, there will be increase to the assets test limit for retirees looking to receive the full Age Pension under the assets test.

“This assets test limit is the value of assessable assets that a retiree can have, along with the family home”, says McCabe, “before their entitlement to a full Age Pension begins to reduce.”

These changes will affect many retirees so it is best to understand the changes and if you will be impacted.

“From 1 January 2017, the assets test limit for retired couples who own their home, looking to access the full Age Pension will rise from $291,500 to $375,000”, says McCabe,  “while for singles, homeowners, it goes up from $205,500 to $250,000.”

The rate at which the Age Pension reduces for every $1,000 over this assets tests limit, called the taper rate, will also increase from $1.50 to $3.00 per fortnight from 1 January 2017.

“This means that the Age Pension reduces at twice the rate it does now, for those with assets exceeding the limit”, adds McCabe.

How will I be affected?

While the increase in the assets test limit means many retirees will be eligible for the full Age Pension, the higher taper rate means there will be many currently receiving a part pension that may no longer be eligible.

“The impact these changes will have on you can be difficult to calculate”, says McCabe, “as it depends on your individual situation and how your assets are structured.”

“Some good news for retirees”, says McCabe, “is that the Government hasn’t proposed any amendments to how the family home is assessed when calculating the age pension.”

“For those retirees over pension age that end up losing their pension entitlement completely due to these changes, they will automatically receive a Commonwealth Seniors Health Card that is exempt from the standard income test that normally applies to this card.”

What are my options?

There is still time to talk to your financial adviser about changes you could possibly make to reduce the impact on you, prior to 1 January 2017.

However, the complexity involved in reviewing and restructuring your assets to minimise the impact of these changes means getting financial advice is something definitely worth considering.

 “There are a range of strategies that could help you to reduce your assets in the most social security-friendly way”, says McCabe.

These include:  

  • making super contributions for your spouse if they are under Age Pension age
  • bringing forward some spending, such as home renovations 
  • gifting money within limits to your children or grandchildren
  • buying an annuity that has a reducing assessable asset value.

As you can see, choosing the right strategy for you is not only difficult to work out, it can often be very difficult to reverse if you get it wrong.

You still have time before 1 January 2017 rolls around, so getting advice now will help you get your retirement income set before the deadline.

Next Steps

Furthermore, another big obstacle with the changes, is how the Government will communicate these changes to the Australian public. As always, we are here to support you working through the confusion, complexities and changes to determine how this will affect your personal situation, with a focus on your budget, long term capital longevity and what we can do to support you.

To find out more, whatever your age or financial situation, contact Matthew McCabe from Judge Financial Planning on 02 4709 6741 or at mmccabe@judgeaccountants.com.au 

Alternatively, you can book a meeting directly with Matthew McCabe Appointment or your local Penrith Financial Planner or Newcastle Financial Planner. 

 

 

*Matthew McCabe is an Authorised Representative of RI Advice Group Pty Limited (ABN 23 001 774 125), AFSL 238429. This editorial does not consider your personal circumstances and is general advice only. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser. From time to time we may send you informative updates and details of the range of services we can provide.