The new rules that will change the asset test thresholds and pension taper rate that were first announced in the 2015-16 Federal budget are nearly upon us. Who is affected and what strategies remain to lessen any negative impact for affected pension recipients?
The measures will mean that from 1 January 2017 (according to Treasury estimates) approximately 50,000 part-pensioners will now receive the full pension while approximately 91,000 current part-pensioners will lose their pensions totally and a further 235,000 will have their part-pension reduced.
Some part-pensioners will qualify for a full pension from 1 January due to an increase in the asset test thresholds:
But other pension recipients with asset levels above the current indexed thresholds shown below will be affected by the increasing taper rate which will now reduce the pension by $3.00 per $1,000 of assessable assets above the threshold (increased from $1.50) meaning the pension will cut out at a lower level of assessable assets.
Please note these figures have been indexed above the current thresholds provided by the Department of Human Services to more accurately show where the actual thresholds will land from 1 January 2017.
Examples of how people will be affected
By way of example, this means that a homeowner couple with up to $451,500 of assessable assets will either have no change or benefit from a slight increase in their pension (assuming they are assessed under the assets test).
However, a couple with $823,000 of assessable assets would go from $14,467 p.a. of joint pension to zero.
Likewise, a single recipient with assessable assets up to $289,500 would be unaffected.
However a single recipient with $547,000 of assessable assets would lose $10,042.00 p.a. in pension entitlements.
How can you reduce your assessable assets?
Some strategies to reduce your assessable assets could include:
- Contribute to super in the name of a spouse under Age Pension age;
- Ensure non-financial assets are appropriately valued (i.e. value personal items at “fire sale” value, not their insured value);
- Increase withdrawals for lifestyle spending or to make capital improvements to your principal home;
- Gift money to your children (you can gift up to $10,000 each financial year or up to a maximum of $30,000 over a rolling five year period without impacting your pension);
- Invest in a funeral bond or for pre-paid funeral expenses; and
- Invest in a lifetime annuity that has a reducing asset value.
Of course, speak with your financial adviser prior to implementing any strategies so the implications of the new rules can be fully assessed for your personal situation.
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