Changing of the Goal Posts for Self-Funded Retirees - How to make sense of the Changes to the Age Pension.

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For many years, the Age Pension has been available to thousands of self-funded retirees who have sought advice around the generous rules and exemptions available and employed smart strategies to gain access to the Government Benefits, even with substantial superannuation balances.

From 1st January 2017 however, the rules are being tightened!

If you are currently receiving a part or full age pension, you may be one of 400,000 retirees affected by the changes starting in the New Year.

The good news

Basically the assets test free area will increase which means that you can own more assets before the full age pension is affected.

Here’s what it will increase to:

Family situation Homeowners Non-homeowners
  1-Jul-16 1-Jan-17 1-Jul-16 1-Jan-17
Single $209,000 $250,000 $360,500 $450,000
Couple combined $296,500 $375,000 $448,000 $575,000

For many pensioners close to these thresholds, this may mean your benefits will increase.

It is important to note that the family home is still exempt from the assets test and that all income support payments are means tested under both income and assets tests. Both tests are used in calculating the rate of payment, with the one that results in the lower rate being the one that is applied.

The bad news

At the same time though, the taper rate for pensioners will also increase which will see a reduction in payments for some, while others may have their pensions cancelled.

Currently, for every $1,000 of assets you own above the assets test free area, your pension is reduced by $1.50 per fortnight however come 1 January, this doubles, to $3.00 per fortnight.

This means that the current levels of assets you can have in order to receive a part pension will decrease, leaving many self-funded retirees to do just that, fund themselves and draw more on their own investments and superannuation.

Part pensions cancel when assets are more than the following amounts.

Family situation Homeowners Non-homeowners
  20-Sep-16 1-Jan-17 20-Sep-16 1-Jan-17
Single $793,750 $542,500 $945,250 $742,500
Couple combined $1,178,500 $816,000 $1,330,000 $1,016,000

As an example, from 1 January, a home-owner couple over Age Pension age with $1,000,000 in superannuation will lose any age pension benefits they are receiving. Keep in mind that superannuation held by a spouse under age pension age, in an accumulation account, will remain exempt.

Do you need to take action?

If you are currently receiving the maximum rate of pension, your payment won’t change.

If you receive an increase due to these changes, this will happen automatically.

If your pension is reduced due to these changes, you will be sent a letter from the Department of Human Services – you do not need to contact them.

For those losing the pension in full, you will also be sent a letter and your Concession Card will be cancelled but you will instead be sent a non-income means tested Low Income Health Care Card or Commonwealth Seniors Card if you are over age pension age.

For many self-funded retirees who are receiving small or part age pensions, we have already been discussing strategies around this in our review meetings. Should you receive a letter, please forward this to us and we will be in contact to reconfirm our plan of action before 1 January and your new strategy going forward.

Olivia Maragna is the co-founder of Aspire Retire Financial Services and is a respected and independent financial expert.  Olivia’s advice is general in nature and readers should seek their own professional advice before making any financial decisions.

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