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Aged Pension - Are you aware of the changes ?

Changes to Aged Pension Income test

     

On 7 May 2015 the federal government announced changes to the Age Pension assets test (and confirmed this proposed policy in the May 2015 Federal Budget), affecting those retirees receiving a PART Age Pension. According to the Minister for Social Services, Scott Morrison, around 326,000 retired Australians with will lose some or all of their Age Pension entitlements due to a new, harsher Age Pension assets test. The announced changes are no law.

The stricter Age Pension assets test will operate as follows: The taper rate for the assets test, which determines how much Age Pension you receive, will reduce your Age Pension entitlement by $3 a fortnight for every $1000 of assets you own over the full Age Pension threshold, taking effect from 2017. Currently, the taper rate is $1.50 per $1000 of assets over the full Age Pension threshold. I explain how this will affect Age Pensioners later in the article.

On the upside, according to the government, around 50,000 lucky Australians will receive the FULL Age Pension (rather than their current PART Age Pension entitlement) due to an increase in the assets-test free area threshold, effective from January 2017. If your assets are below the assets-test free area threshold, you then receive the FULL Age Pension. I list the higher thresholds, taking effect from January 2017, later in the article.

Note: According to the revised Explanatory Memorandum accompanying the legislation introducing the Age Pension assets test changes, “Those whose pension is cancelled will automatically be issued with a Commonwealth Seniors Health Card, or a Health Care Card for those under pension age, without the need to meet the usual income requirements. Veterans whose service pension is cancelled under this measure will retain their Veterans’ Affairs Gold Card.” The federal government legislation does not deal with state-based concessions, such as rate and utility discounts. You will need to check with your council and service providers, since these concessions are provided by the states.

Important: The harsher assets test also applies to other social security pensions, including disability support pension, wife pension, carer payment, bereavement allowance, widow B pension and certain pensions administered by the Department of Veterans’ Affairs. According to the revised Explanatory Memorandum accompanying the legislation, the assets test also applies to parenting payment and allowances (widow allowance, youth allowance, austudy payment, newstart allowance, sickness allowance, special benefit and partner allowance).

Change to Age Pension income test for retired public servants, and other retirees receiving defined benefit pensions: The federal government also announced changes to the Age Pension income test for those Australians (retired public servants and retired employees of some large companies) who receive defined benefit superannuation pensions. Taking effect from 1 January 2016, this measure will affect 35% of retired public servants, and an unknown number of retirees receiving defined benefit pensions from company super funds.

Age Pension assets test changes from 2017

In May 2015, the Minister for Social Services, Scott Morrison announced the following changes (which are now law), to take effect from January 2017:

§  The taper rate for the assets test, which determines how much Age Pension you receive, will reduce your Age Pension entitlement by $3 a fortnight for every $1000 of assets you own over the full Age Pension threshold, taking effect from 2017. Currently, the taper rate is $1.50 per $1000 of assets over the full Age Pension threshold. In effect, the PART Age Pension threshold will be cut by around $328,000 on current threshold levels for home-owning couples and cut by around $228,000 for single home-owners, which is why just over 300,000 retirees will be lose entitlements, either partially, or fully.

 

§  From 2017, the assets-test free threshold will increase from $202,000 for a single person who is a home-owner to $250,000, and for a home-owning couple, increase from $286,500 to $375,000. The expansion of the lower threshold means 50,000 more Australians will be entitled to a FULL Age Pension, who currently receive a PART Age Pension, and the government estimates that increasing the threshold for FULL Age Pension entitlement will benefit 170,000 retired Australians. The assets-test free threshold is the measure for the FULL Age Pension, that is, when your assets, excluding the family home, are worth less than the threshold. You are then entitled to the FULL Age Pension, assuming you also meet the Age Pension income test.

 

Age Pension assets-test free area

 

Homeowner

Non-homeowner

 

Until June 2016*

January 2017

Until June 2016*

January 2017

Single

$205,500

$250,000

$354,500

$450,000

Couple

$291,500

$375,000

$440,500

$575,000

*Indexed again from 1 July 2016.

Source: Revised explanatory memorandum, Social Services Legislation Amendment (Fair and Sustainable Pensions) Act 2015

What do these changes mean for retirees?

The Age Pension assets test (also known as the Centrelink assets test) is a means test that assesses the value of the assets you own against asset thresholds, and determines your eligibility for the Age Pension and other social security payments.

An eligible individual must satisfy the Age Pension income test, and the Age Pension assets test to receive a FULL, or PART, Age Pension. The amount of Age Pension will be based on the test that delivers the lowest amount of Age Pension entitlement. If an individual fails one of the tests, then he or she will not be eligible for the Age Pension.

More retirees to receive FULL Age Pension

Currently, for a FULL Age Pension, a single person can own no more than $205,500 in assets (excluding his or her home), while a couple can own no more than $291,500 in assets (excluding home). These thresholds for a FULL Age Pension will be indexed again from 1 July 2016, while the PART Age Pension thresholds are indexed three times a year, in line with the FULL threshold indexation, and the Age Pension rate increases (in March and September of each year).

From January 2017, by increasing the assets-test free threshold to $250,000 (single home-owner) and $375,000 (couple home-owners), more retired Australians will be entitled to the FULL Age Pension. The federal government estimates 50,000 more Australians will receive a FULL Age Pension as a result of these changes, and another 120,000 Australians will receive a slight increase in PART Age Pension entitlements.

Retirees receiving a PART Age pension

Currently, a single person can own more than $775,000 in assets (excluding his or her home), and still receive a small PART Age Pension, while a couple can own more than $1.15 million in assets (excluding the couple’s home) and still receive a small PART Age Pension. Tables outlining the current assets test thresholds are set out in other articles, listed at the end of this article.

From January 2017, by increasing the taper rate to $3 for every $1000 of assets, those Australians currently receiving a PART Age Pension and holding more than $823,000 in assets (excluding the family home) can expect to lose all PART Age pension entitlements.

 

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