By Matthew Khourey*
THE start of next year could yield a belt-tightening surprise for thousands of Tasmanian pensioners. Changes to the social security assets test, which in-part determines whether a retiree is eligible to receive a pension and if so how much, are due to come into force on 1 January 2017.
The government has estimated more than 300,000 Australians will either have their pensions reduced, or removed completely, as a consequence of the upcoming changes, while 170,000 will have more money in their pockets. In Tasmania the number adversely affected is likely to be between 7,000 and 10,000 considering our older population. So, what will change to the way Centrelink tests assets from the start of January?
The age pension ‘assets test free area’ will increase from $209,000 to $250,000 for single homeowners and from $296,500 to $375,000 for couple homeowners. This is the value of assets in addition to your principal home that will not be included in the assets test.
The ‘taper’ rate for the pension assets test will increase from $1.50 per fortnight to $3 per fortnight. This means that for every $1,000 of assets over the ‘assets test free area’, pension payments will reduce by $3 per fortnight.
What this means in practical terms for people whose pensions are determined by the assets test is:
If you are a single homeowner with $250,000 or more in assets, or if you are a single non-homeowner with $450,000 or more in assets, your pension will reduce, or be extinguished entirely, because you will now be required to forgo $3 per fortnight from your pension for every $1,000 worth of assets over the threshold.
If you are a couple and you own your home, the assets test threshold will be $375,000, while for a non-homeowner couple the assets test threshold will be $575,000. If your assets exceed these thresholds, your pension may be affected.
Reassessing retirement plans
These changes mean that many Tasmanians will have to reassess their retirement plans to take into account potential changes in planned income. While this may sound daunting, there are many strategies that can enable you to reduce assessable assets and minimise the impact of these changes.
Your options include such strategies as investing in long-term annuities, upgrading your home thereby reducing assessable assets, gifting (within the allowable limits), as well as funeral bonds and prepaid funerals.
An annuity is a financial product that pays a regular income over time. There are a range of annuities on the market, all with different terms and rates of return. You can choose the timeframe of your annuity – 10 or 20 years, for example, or you can choose an annuity that will pay you income for the rest of your life.
If you would like further information on these strategies or are concerned about how your age pension will change after 1 January next year, now is the time to talk to a financial planner.
*Matthew Khourey is a Financial Planner at MyState Wealth Management
This is general advice only, so before making any decisions please speak with a MyState Wealth Management Financial Planner. Information current as at 14/11/2016.