Changes to Age Pension assets test effective 1 January 2017

By Liz Maroney, Westlawn Wealth Adviser
SMSF Specialist Advisor™
19 October 2016

Changes to the assets test for the Age Pension apply from 1 January 2017. While some pension recipients will benefit from the changes, others will receive a reduced age pension (or other pension entitlement). Some may lose their entitlement altogether. Here, MLC’s Technical team provide a summary of the changes and assess who may be affected. 

The asset test changes were announced on 7 May last year by Scott Morrison who was then Minister for Social Services.

A media release ‘Fairer access to a more sustainable pension’, released by the Minister on the day of the announcement stated that:

While more than 170,000 pensioners with modest assets will have their pensions increased by an average of more than $30 per fortnight, approximately 91,000 part-pensioners will lose their entitlement, with a further 235,000 pensioners having their entitlement reduced.”

So, what are the changes?

There are two changes to the assets test that will take effect from 1 January 2017. These are:

  1. The assets test thresholds under which the full pension is potentially payable will increase (as shown in Table 1 below). Homeowners will be able to hold assessable assets up to $250,000 (singles) and $375,000 (couples) without impacting full-pension entitlements. For those who don’t own a home, the new thresholds will be $450,000 (singles) and $575,000 (couples).
  2. The taper rate is the rate at which an entitlement reduces under the assets test. This will increase from the current $1.50 per fortnight for every $1,000 of assets held above the threshold to $3.00 per fortnight. So, for every additional $1,000 in assets held above the minimum threshold for a full pension, fortnightly payments will reduce by $3.00.

Table 1

Lower assets thresholds
Current1 January 2017
Homeowner
Single
Couple
$209,000
$296,500
$250,000
$375,000
Non-homeowner
Single
Couple
$360,500
$448,000
$450,000
$575,000

Who will be negatively affected?

Pension recipients will be adversely affected if their assets reach an amount where the negative effect of the higher taper rate is greater than the positive effect of the increased threshold.

An estimate of these amounts (calculated on the pension as at 20 September 2016) are set out in Table 2 below[1]:

Table 2

Asset value at which change is potentially adverse
 HomeownerNon-homeowner
Single$291,000$539,500
Couple$453,500$702,000

An estimate of the approximate value of assets (calculated on the pension as at 20 September 2016) where the pension ceases to be payable altogether are set out in Table 3 below[2]:

Table 3

Approximate asset value where pension ceases (including pension payable before change)
 HomeownerNon-homeowner
Single
Assets where pension ceases from 1/1/2017

Annual pension at 31/12/2016

$543,780

$9,858

$743,780

$7,967

Couple
Assets where pension ceases from 1/1/2017

Annual pension at 31/12/2016

$817,870

$14,210

$1,017,870

$12,319

Commonwealth Seniors Health Care Card

As compensation, age pensioners who lose entitlements due to the above changes may be entitled to the Commonwealth Seniors Health Care Card from 1 January 2017 without having to meet any income test at any time in the future.[3]

The Seniors Health Care Card provides a range of concessions, including:

  • Discounts on Pharmaceutical Benefits Scheme (PBS) prescription medicines
  • Bulk-billed doctor appointments (at the doctor’s discretion)
  • Lower out-of-hospital medical expenses through the Medicare Safety Net, and
  • Certain state, territory and local government concessions – such as transport or concessions from private business that vary between each state and territory.

Indexation of thresholds

The thresholds will continue to be indexed to CPI as currently occurs. The new thresholds will first index on 1 July 2017, based on the annual change in CPI.

This will mean that over time some people who have a reduced entitlement, or lose their entitlement altogether, may at least partially have their position restored through a combination of pension indexation increases and indexation of the assets test threshold.

Age pension assets test changes due to affect some retirees come 1 January 2017.

Strategies for those potentially affected

For those who may be affected by the upcoming assets test changes, you may be able to reduce the value of assets that are counted towards the assets test by:

  • Gifting above the allowable thresholds, where the amount above the limits will be assessed as a deprived amount, but will cease to be assessed after five years.
  • Improving an existing dwelling or buying a more expensive residence (an exempt asset).
  • Buying a long dated zero residual capital value (RCV) annuity as a substitute for fixed income assets.
  • Having estate proceeds bypass a surviving spouse, rather than a surviving spouse retaining ownership of all assets.

While some of these strategies are a matter for personal judgement and not financial advice, a financial adviser can provide advice on the implications of each option.

[1] The actual point will not be known until the amount of the full pension at 20 September 2016 is known. For the purposes of this article we have estimated the amount of the pension at 20 September 2016.

[2] The actual point will not be known until the amount of the full pension at 20 September 2016 is known. For the purposes of this article we have estimated the amount of the pension at 20 September 2016.

[3] If the person is outside Australia on 1 January 2017, and does not return within 19 weeks of their original departure, issue of a concession card may not be automatic and a claim may be required.

Contact Liz Maroney

If you are unsure as to whether you will be affected by the assets test changes effective 1 January 2017, contact me today to discuss your situation and possible strategies to reduce the impact:

Copyright © 2016

Westlawn Wealth Adviser, Liz Maroney is a ...

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