Age pension changes — what does it mean for you?
From 1 January 2017 the age pension assets test will change and nearly 300,000 retired Australians stand to lose some or all of their pension and nearly 100,000 will lose all of their pension.
In fact, couples who are homeowners will not receive the pension when their assets reach $816,000 in value. Single homeowners will stop receiving the pension when they have more than $542,500 in assets.
But it’s not all bad news. From January 2017 the assets test limit to qualify for a full age pension will increase meaning that more Australians will be eligible for the full age pension.
The changes explained
There are two calculations the government uses to work out your age pension entitlements. One is based on your assets and the other is based on your income. The test which provides the lower pension entitlement is the test that Centrelink uses to work out the amount to pay you.
Firstly, the assets test limit to qualify for a full age pension will increase from:
$296,500 to $375,000
for home-owner couples
$209,000 to $250,000
for homeowner singles
This means that more Australians will be eligible for the full age pension.
Secondly, the part age pension amount you’re eligible for will decrease at a higher rate.
This is due to a change in the ‘taper rate’.
From 1 January 2017
The pension reduces by $1.50 per fortnight for every $1,000 of assets you own over the full age pension threshold.
The pension reduced by $3 per fortnight for every $1,000 of assets you own over the full age pension threshold
This also means the ‘upper limit’ of assets that a retiree can own while still being eligible to receive any part-pension amount will decrease from:
$1,178,500 to $816,000
for homeowner couples
And from $793,750 to $542,500
for homeowner singles.
Therefore, because of their assets, certain retirees will receive a lower age pension entitlement or be cut-off from the pension altogether from 1 January 2017.
Example: a pensioner couple who own their home and have over $816,000 in assessable assets will lose their part-pension of approximately $14,000 per year. Previously they could own up to $1,175,000 in assets and still receive a part pension.
Note: The family home continues to be excluded from the assets test.
Do you lose your pension concession card if your pension is cut?
As a result of these changes, if you lose your pension entitlement on 1 January 2017 you will automatically receive the Commonwealth Seniors Health Card (CSHC) and the Low Income Health Care Card (LIHCC), available once you have reached age pension age. These cards give you discounts on prescription medicines through the Pharmaceutical Benefits Scheme (PBS). You may also be entitled to other concessions in areas such as health and transport, depending on your state or territory.
What are your options?
The changes are a win for pensioners with lower levels of assets but those with higher levels of assets may lose out.
Importantly, as these changes don’t come into effect until 1 January 2017, you have time to plan for the changes. There are still some legitimate avenues available to reduce your assessable assets for age pension purposes.
If you need help to understand how these changes may affect you,
1 Age Pension: 300,000 plus Australians lose entitlements from January 2017, 15 June 2016, Super Guide
Bridges Financial Services Pty Limited (Bridges). ABN 60 003 474 977. ASX Participant. AFSL No 240837. This is general advice only and does not take into account your objectives, financial situation and needs. Before acting on this advice, you should consult a financial planner.