PENSIONS AND PLANNING THROUGHOUT RETIREMENT – MAY 2015 CHANGES

Changes to the Age Pension announced in May 2015’s Federal Budget have been passed and are expected to benefit retirees with ‘modest’ assets, while ‘wealthy’ retirees may lose part or all, of their pension.

 

The changes, however controversial, set to commence on 1 January 2017, aim to make the payment of Age Pensions more sustainable by tightening the criteria around the asset test.

 

More retirees to receive full pension
Following these changes more retirees will be eligible for the full pension due to the increase in the Assets Test threshold.

 

The Assets Test threshold describes the level of assets a retiree can hold, on top of their family home, before their Age Pension entitlement is reduced. The current and proposed thresholds are detailed below.

  Assets Test threshold for full Age Pension
Currently From 1st January 2017 Increase
Single, homeowner $202,000 $250,000 $48,000
Single, non-homeowner $348,500 $450,000 $101,500
Couple, homeowner (combined) $286,500 $375,000 $88,500
Couple, non-homeowner (combined) $433,000 $575,000 $142,000

 

Part-pension retirees likely to lose out
Under the changes effective from 1 January 2017, retirees on a part-pension may lose part, or all of, their entitlements.

 

Retirees with assets over the thresholds outlined above receive a part-pension. The rate at which the pension is reduced (often referred to as the taper rate) increases in line with the value of assets a retiree holds.

 

Currently the Age Pension entitlement is reduced by $1.50 per fortnight for every $1,000 of assets above the Assets Test threshold. By way of example, a retiree with assets $10,000 above the threshold, will have the pension reduced by $15 a fortnight.

 

From 1 January 2017, entitlements will be reduced by $3 per fortnight for every $1,000. Using the example above, this will result in a reduction of $30 a fortnight.

 

An increase in the taper rate will effectively reduce the value of assets a retiree can hold before their pension is cut-off entirely. A person will no longer be entitled to a part-pension when their assets exceed the levels set out below.

 

Currently From 1st January 2017 Decrease
Single, homeowner $775,500 $547,000 $228,500
Single, non-homeowner $922,000 $747,000 $175,000
Couple, homeowner (combined) $1,151,500 $823,000 $328,500
Couple, non-homeowner (combined) $1,298,000 $1,023,000 $275,000

 

As a compensation for those who are affected by the scale back of maximum assets a retiree can hold before their pension is cut-off, the Government has announced that such retirees will automatically be eligible for the Commonwealth Seniors Health Care Card (CSHC).

 

Pensioners overseas to face stricter benefits test
From 1 January 2017, pensioners who have lived in Australia for less than 35 years could see their Age Pension reduced if they move overseas.

 

Currently, all pensioners that live overseas are entitled to their full pension for the first 26 weeks. After 26 weeks, pensioners with an Australian Working Life Residence (AWLR) of less than 35 years are paid a reduced rate proportional to their period of AWLR. Under the new changes, the period for testing will be reduced from 26 weeks to 6 weeks.

 

Pensioners who are overseas on 1 January 2017 will not be affected by this change unless they return to Australia and make a subsequent trip overseas. Pensioners who are exempt from proportionality rules, such as recipients of the Disability Support Pension who are terminally ill or severely impaired and certain Widow B Pension and Wife Pension recipients, will not be affected.

 

Related changes for pensioners
Increasing consumer choice within Home Care
From 1 February 2017, the online portal My Aged Care Gateway will be responsible for allocating home care packages directly to consumers, giving them greater choice around the services they receive and their providers.

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