Changes for the age Pension
Earlier this year the Government made amendments to the Age Pension Assets test that are set to commence 1st January 2017. These changes are likely to make a significant difference to the pension that many retirees are currently receiving.
In simple terms those with low asset levels moderately above the current thresholds are likely to receive a small increase in pension, whilst those with higher asset levels are going to receive a reduction in pension; anyone with assessable assets above $823,000 will no longer be entitled to an age Pension.
The changes to the test are 2 fold, the thresholds for those to receive the maximum pension have increased, however the taper rate has also increased. The Taper rate is the rate that the Pension reduces as assets increase. Currently the pension falls by $1.50 per fortnight for every $1000 the assessable assets exceed the threshold, on January 1 2017 this will increase to $3.
For a home owner couple, anyone with assessable income above $451,500 will see a reduction of Centrelink income, below is the table that outlines the effect of the changes bases on asset test levels. (Singles and Non-homeowners have different thresholds; however the trend is the same)
Many retirees will see a reduction of Age pension, those in this situation will have 1 of 2 choices, do they reduce the income they live on, or draw more money from their retirement savings (or a combination of both). I suspect in most cases those in this situation will increase their drawings from their retirement savings, this will obviously see those balances reduce faster than initially planned and may no longer be sufficient to meet the retirement lifestyle that was originally planned.
It would be advisable for any retiree that is likely to be affected by these changes to seek advice to readdress their financial plan. Alterations to the current strategy may be required and there are a number of strategies that can be used to reduce some of the issues faced.
As a follow on from the changes to the income test that were recently introduced, retirees are increasingly be required to be more and more responsible for their income in retirement, it would seem that this trend is likely to continue. The sooner we start preparing for this, the better we will be positioned when we reach retirement.