Q: I am a self-funded retiree who receives a part Age Pension. Given the fall my Allocated Pension has fallen, what steps should I now be considering to preserve our retirement income?
A: For retirees financially impacted by the recent crisis, there are a range of important measures they should immediately take.
Retirees who have previously been excluded from receiving the Age Pension due to the assets test, they may now qualify if there assessed assets are now below the maximum assets test threshold. Under the Asset test, if you are Age Pension age, generally all of your assets are counted at current market value, including Superannuation. Your family home that you reside in, as well as certain other assets, are exempt under this test. For a couple who own a home, the assets test threshold to receive part pension is $869,500 or $578,250 if a single homeowner. For a non-homeowner couple, the threshold to receive part pension is $1,080,000 or $788,750 for a single non-homeowner.
For retirees on Age Pension benefits who currently receive a part pension due to the assets test, seek an immediate reassessment by Centrelink of your assets to reflect their current market values. Given the likely recent fall in retirement savings, every $1,000 of reduction in assets value should increase Age Pension benefits by $3 per fortnight provided they are currently in receipt of a part pension.
The deeming rates used to assess the incomes test for those on Centrelink benefits have been temporarily reduced by an additional 0.25%. From 1 May, the lower deeming rate on assets up to $51,800 for singles or $86,200 for couples will be 0.25 per cent and the upper deeming rate will be 2.25 per cent. This will mean that those who have previously been impacted by the incomes test may see their Age Pension benefits increase. If you are already in receipt of benefits, you do not need to apply, the changes will automatically take effect.
The government is temporarily reducing minimum super drawdown requirements for account based or allocated pensions, annuities and similar products by 50% for the current financial year and the 2020-21 financial year. This should reduce the need for retirees to sell investment assets in the current volatile sharemarket conditions to fund their minimum drawdown requirements. This is similar to the initiative utilised during the GFC. The revised minimum pension for those under 65 will be 2%, age 65 to 74 will be 2.5%, age 75 to 79 will be 3% and 80 to 84 will be 3.5% and so forth. Contact your pension provider to seek this variation.
In response to the coronavirus, the government is providing two separate $750 payments to social security benefit recipients. The first payment announced on 12 March 2020 will be available to people who are eligible payment recipients from 12 March 2020 to 13 April 2020 inclusive. This payment will be made around 31 March 2020. The second payment will be available to people who are eligible payment recipients on 10 July 2020. The payment will be made around 13 July 2020.
Beyond safety nets and stimulus provided by the government, there are a number of personal decisions you should consider.
Ensure you have a cash buffer to provide for your needs in the event of an emergency. A typical emergency funds should equate to approximately three months’ worth of your income needs.
Review your living expenses and only draw from your retirement savings what is required to meet your immediate daily living costs. Given you are unlikely to travel in the foreseeable future, retain the savings as long as you can in your retirement funds.
Reassess your appetite for investment risk and ensure that your retirement savings are invested in line with your risk profile. Avoid the temptation of moving all your funds to cash. Correctly timing exit and entry into the share market during volatile times is particularly challenging. Investors seeking to enter the market following a market correction typically will wait for confirmation or some certainty of recovery before investing. This response limits the positive returns captured from the market recovery.
Now is not the time to make uninformed decisions. Get professional Financial Planning advice. At the very least to understand the consequences of your own decisions and to minimise the risk of permanently damaging your retirement plans.