Changes to pension assets test in 2017: Are you ready?

changes

The Government has passed law to change Centrelink’s Age Pension assets test from 1 January 2017 

Here’s a reminder about the changes.

To receive a full pension:

From 1 January 2017, the Government will increase the assets test limit to qualify for a full pension to $375,000 for couples and $250,000 for single people.

To receive a part-pension:

The pension amount you lose for owning assets above the full Age Pension threshold will increase.

Currently, your pension rate reduces by $1.50 per fortnight for every $1,000 over the limit. For example, if you’re $10,000 over the allowable limit, your rate of pension is reduced by $15 per fortnight. This is sometimes referred to as the ‘taper rate’.

From 1 January 2017, your pension will be reduced by $3 per fortnight for every $1,000 of assets you own over the full pension limit. That will mean $10,000 in extra assets will reduce your pension by $30 per fortnight.

Maximum limits before you no longer qualify for a pension:

Because your pension is cut at a faster rate for having more assets, it means the ‘upper limit’ to receive a part-pension and the all-important pensioner concession card will decrease to $823,000 for homeowner couples and $547,000 for single people. Note that your home is not included in the asset test but some examples of what are included are:

  • Car
  • Caravan
  • Bank accounts
  • Home contents
  • Superannuation
  • And the handful of NRMA shares bought 20 years ago

So how do you prepare for this change? 

One way is to look at what the options are for reducing your assessable assets. Some options include:

  • Contributing to super in the name of a spouse under Age Pension age

While you are under Age Pension age money that you have in super in the accumulation phase is not counted under the assets test.  This provides an opportunity to consider for couples with a gap in age, where only one partner currently receives the pension.

  • Improving the principal home

Funds spent on home improvements and renovations are not assessed against your pension.

  • Gifting early

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.

Importantly, you are able to gift in excess of these limits five years before you reach your Age Pension age. By the time you reach your pension age, the gifted amount will not be included in your pension application.

If you have some money that you plan to use to assist your children, plan ahead and consider gifting before reaching your pension age.

  • True value of your home contents

Ensure you have provided to Centrelink the true sale value of your contents.  Remember this is not about insurance replacement-value but instead about garage-sale value.

Be prepared and get advice

With a little time on your side, now is the time to get prepared and obtain advice about the impact of these changes. Many of the options are time-dependent, so obtaining advice as soon as possible is a must.

 

The advice contained in this article is general in nature and is not tailored to your specific needs or circumstances. Before taking action it is important you consult a financial adviser or other professional, we can help. All figures and legislative references are current as of 19 April 2016.

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