The law has been passed: from 1 January 2017, the Government will increase the Centrelink lower asset test thresholds (the assets test free area) and the withdrawal rate (the taper rate) at which pensions are reduced once that threshold is exceeded. The assets test free area is the amount of assets above which allowances are not paid and pensions are reduced.
The assets test free areas will increase to:
Allowees and pensioners with few assets will benefit from the increased asset threshold. Pensioners will be subject to a new taper rate of $3 for every $1,000 above the new assets test free areas.
The assets test upper thresholds will reduce by:
Income support recipients who lose their payment entitlement as a result of the changes will be automatically issued with a Commonwealth Seniors Health Card (CSHC), or a Health Care Card (HCC) for those under Age Pension age. They will be exempt from the usual income test requirements for these cards indefinitely.
According to the Minister for Social Services, Scott Morrison, around 326,000 retired Australians will lose some or all of their Age Pension entitlements due to a new, harsher Age Pension assets test and around 50,000 Australians will receive the full Age Pension. On budget night, the Federal Treasurer Mr Joe Hockey promised that ‘anyone who currently has a Pensioner Concession Card will continue to receive a concession card that provides the same benefits.’ However, this means that individual State Governments would have to not only agree to this but also find the additional funding to pay for the extra cost of concessions. So it’s not a given that this will be the case. It is anticipated retirees will lose anywhere between $1,500 and $2,000 of state based concessions.
Some pensioners may have locked in grandfathered account based pensions (ABPs) prior to 1 January 2015. For these people, any cancellation of part Age Pension entitlements will mean they forego the grandfathered status of their ABPs. This means that the ABPs will be deemed at prevailing deeming rates for CSHC income test purposes (and indeed for Age Pension means testing purposes should they reapply for the Age Pension at a later time).
Similarly, a surviving spouse inheriting a reversionary grandfathered ABP may be impacted by the proposed upper asset test threshold, meaning the grandfathered status of the inherited ABP is foregone and potentially impacting on future eligibility to the CSHC.
For residents in residential/home care, receiving a lower Age Pension may translate to lower care fees. Pensioners who have previously registered in time for the Pension Bonus Scheme should consider applying for their bonus (where eligible) sooner rather than later if their level of assets preclude them from the pension.
The Government has not changed the asset exemption on the principal home.
The options are limited but the following should be considered:
Improving your home
If you were thinking about renovations or upgrades to your residential property, now would be a great time to get started on those and spend some of your assessable funds towards your house which as we know will continue to be exempt for Centrelink purposes.
You can gift up to $10,000 each financial year or up to a maximum of $30,000 over five years without impacting your pension. Make that charity donation or help your kids now within those limits. If you haven’t reached your pension age yet, this is your chance to gift or donate a much larger amount.
Contributing to your younger spouse’s super fund
If your spouse is under the Age Pension age (65), their superannuation funds are not assessed for Centrelink purposes. They can make a non-concessional contribution of up to $180,000 per annum or up to $540,000 using the bring-forward rule for three years ahead which could significantly reduce your joint asset base.
Purchasing an annuity product with a reducing asset value
Products like lifetime annuities provide you with a regular ongoing income over a long term. These annuities are assessed by Centrelink with reference to a deductible amount (original investment value divided by the life expectancy of the investor at the time of the investment purchase) which reduces the value of the investment asset as well as the income for Centrelink purposes.
For more information about the above or an aspect of your financial position, book a free consultation with Lisa by clicking here.
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