Q: My wife and I currently receive a very small part Age pension as a result of the impact of the Assets Test.  We have been warned that we will lose the pension in 2017. Whilst we appreciate the extra dollars the Age pension provides, our major fear is the loss of the benefits card.  What is the impact of the changes and will we lose all benefits?

A: Effective 1 January 2017, the Government is making two important changes to the means testing of Social Security Pensions.

The two changes relate to the Assets test. Firstly, the lower threshold (where a Pensioner is entitled to receive the full Age Pension) has been increased. However, the rate at which the Age Pension reduces will also increase from $1.50 to $3 per fortnight (for every $1,000 of assessable assets above this lower assets test threshold).

As a result of these changes, the Government has estimated that 50,000 pensioners who currently receive part pensions will be entitled to receive the full pension.  However it is estimated 91,000 pensioners who currently receive a part pension will lose their pension benefit and a further 235,000 will have their existing benefits reduced.

The following changes in thresholds will apply:

  Lower Threshold* Upper Threshold*
Current

Full Pension

(Assets below)

Post 1 Jan 2017 Full Pension

(Assets below)

Current

Part Pension

(Assets Below)

Post 1 Jan 2017

Part Pension

(Assets Below)

Single Homeowner $205,500 $250,000 $783,500 $547,000
Single

Non-Homeowner

$354,500 $450,000 $932,500 $747,000
Couple Homeowner $291,500 $375,000 $1,163,000 $823,000
Couple

Non-Homeowner

$440,500 $575,000 $1,312,000 $1,023,000

 

* Based on government indexation estimates

In order to reduce the impact of the asset test, there are a range of strategies that could be considered. However, broadly speaking, these typically involve reducing the amount of assessable assets you have – and strategies that reduce your assets will reduce your wealth and impact your income levels.

If your spouse is below Age Pension age, you could consider transferring assets into their Superannuation – as superannuation is not counted for Assets test purposes until they attain Pension Age. Note normal contribution limits apply to the transfer.

If you do not have a younger spouse, you could consider:

  • Renovating or upgrading the family home as the family home is assets test exempt.
  • Spending money on a holiday.
  • Gifting up to $10,000 of assets per financial year (up to $30,000 in any rolling 5 year period).
  • Updating your Wills to avoid the impact of a future inheritance by passing benefits to beneficiaries other than your spouse. Likewise, future inheritances from aging parents could be passed directly to your children as opposed to yourself.
  • If you are looking to move into Aged Care, you could consider making a lump sum accommodation payment for Aged Care residents. These amounts are exempt from the Income and Assets test. Similarly, the former family home can be exempted under the asset in certain circumstances.
  • Purchasing a funeral bond up to $12,500 per person.
  • Pre-paying your funeral and cemetery plot.

Individuals who lose their Pension as a result of these asset test changes on 1 January 2017, will automatically be issued with a Commonwealth Seniors Health Card or a Health Care Card for those under Age Pension age. Further, these individuals will also be exempt from the Income test requirements for these cards indefinitely.

It is important that you consider your overall circumstances and income and capital needs. Please seek Financial Planning advice to determine what the impact of the changes will be and what strategy will work best for you.

Follow Andrew on Twitter @AndrewHeavenFP. This article was originally published in The Australian