From 1 January 2017, changes are coming to pension payments. Anyone who is currently receiving a pension or part-pension needs to be fully aware of these changes so that they can take appropriate action and caution. The changes will be based around the assessments of asset limits, and will mean some pensioners will see a reduction in their payments, while others will see increases in their payments.
On the lower end of the scale, there will be a number of pensioners who will be better off under the government's changes and now receive the full pension.
Full pension, Home Owners:
If you own a home, the new assets thresholds will allow you to hold assessable assets up to $250,000 (singles) and $375,000 (couples) without impacting your full-pension entitlements. Some single homeowners under the threshold will see about $30 a week added to their pension, while couple homeowners under the threshold will see around $19 each, per week, added to their pensions.
Full pension, Non Home Owners:
The new assets thresholds for those who don't own a home will be $450,000 (singles) and $575,000 (couples) without impacting full-pension entitlements. Some single Non Home Owners under the new threshold will see around $27 per week added to their pensions, while couple Non Home Owners included in the new threshold will see between $18-37 each, per week, added to their pensions.
From 1 January 2017, around 90,000 part-pensioners will lose their Age Pension and about 235,000 part-pensioners' payments will be reduced.
Part Pension, Home Owners:
Single Home Owners will stop receiving the pension when they have more than $542,2500 in assets, this is down from $791,750. Home Owner couples will no longer receive the pension when their assets reach $816,000 in value, this is down from $1,175,000.
Part pension, Non-Home Owners:
Single Non-Home Owners will no longer qualify for the pension if their assets total $742,500, down from $943,250. And couple Non-Home Owners will no longer qualify after they've accumulated more than $1,016,000 in assets, down from $1,326,500.
There is some silver lining for those who have lost their pension for 2017. They will automatically be entitled to receive a Commonwealth senior's health card or a low-income health card. These cards will provide access to Medicare bulk billing and less expensive pharmaceuticals.
If You Will or Could Be Affected by These Changes, it is Important to Plan For Them Now, Rather Than Waiting to See After January 1
There are a few minor strategies (with minor being the key word) if a pensioner is on the cusp with regards to pension eligibility. There has been some angst out there regarding these pension changes, with angry pensioners floating dubious ideas online of how to maintain their pension eligibility. On the extreme side, there have been pensioners talking of knocking down a house to build another (while living in a caravan on site for 18 months!), massive extensions and wholesale renovations, or just buying a more expensive house.
Everyone wants to take less risk the older they get, but from an investment position these ideas are dubious for one reason – they all involve essentially spending several hundred thousand dollars that may not be realised in the same value at a later date. Not to mention, these 'strategies' are taken, because the investor doesn't want to take market risk and potentially suffer a decline in the value of their asset base. Note the contradiction here – churning through a significant amount of money and potentially overcapitalising on a house to get extra pension payments is regarded as no risk, but investing and enduring possible market volatility to achieve an income stream is regarded as high risk!
However, there are some options that may support you to stay "pension-eligible" that don't have to wipe out hundreds of thousands in capital and may provide some ACTUAL VALUE:
Smart Renovations – ie. renovations you may have done anyway because your house requires them, or a renovation that may make your residence more practical for your needs as you age. There may be other improvements that slightly lower an asset base, while also providing some financial relief in other areas, like solar panels.
Gifting – this is a strategy that may be better to start in advance of hitting pension age, as it should be remembered there is a $30,000 five-year aggregate or a maximum of $10,000 that can be gifted in any one year.
Asset Transfer to younger partner's Superannuation – this works when one partner is younger than the other and the superannuation of the younger partner is not included in the assets test if they are not of pension age. Putting some assets into the younger partner's superannuation account means Centrelink will still assess combined assets but will exclude the younger partner's super balance.
Prepaid Funeral – this is as it suggests, a prepaid funeral isn't assessable by Centrelink under the assets test, so it's another way to lower assets to maintain pension eligibility.
Take a holiday – probably not the best strategy unless it was already seriously considered, but we all need a break!
The smartest strategy right now though is to seek advice. Regardless of what position you are in it is always advisable to review your individual situation to ensure that you secure the best outcome for you and your family.
To support all Schuh Group Clients and their families, the Schuh Group Wealth Advisors are offering obligation-free independent reviews from November 7th to December 16th. If you would like to take advantage of an independent review contact us today on 07 5482 2855 figure out the best strategy for you, or email email@example.com