How changes in the Age Pension may affect you

If you are over, or close to the age of 65, it is important to understand the changes to the age pension asset test that come into force from 1 January 2017. These changes are significant and may affect the amount of pension you receive. While a small number of pensioners will be better off, some could be worse of by as much as $9,000 per annum.

What is the Age Pension asset test?

The asset test is a means test that determines your eligibility for the age pension and other social security benefits and generally applies to assets you hold outside your family home. The test allows you to hold assets up to the “lower threshold” and still receive the full age pension. Once you exceed the lower threshold your pension reduces by $1.50 per fortnight for each $1,000 above the lower threshold until your assets reach the “cut-off” threshold and you receive no age pension.  It is important to note that there is also an income test that is applied and the age pension you receive is based on the test that produces the lower amount.

What are the changes from 1 January 2017?

The rate at which your age pension reduces if you exceed the lower threshold is increasing to $3.00 per fortnight from $1.50 per fortnight for every $1,000 over the threshold. This will result in a lower age pension for many.
The lower threshold is increasing which will result in some receiving a higher age pension.

There are no changes to the income test.

The table below summarises the current and estimated new thresholds from 1 January 2017.

What happens if I lose my entitlement to the age pension?

If as a result of the changes you lose your age pension entitlement you will automatically be eligible for the Commonwealth Seniors Health Card which provides a range of benefits including discounts on certain pharmaceuticals.

What can I do to maximize my age pension under the asset test rules?

The main options to maximize your age pension under the asset test are:

Gifting. You can gift up to $10,000 per financial year up to a maximum $30,000 over a five year period. Any amounts gifted above these limits will still be counted as an asset by Centrelink.
Buy a Funeral Bond up to $12,500. Contributions into a Funeral Bond up to $12,500, per member of a couple, will be exempt from the asset and income tests.
Spending. Spending to upgrade the family home may be an option (The family home is an exempt asset). Other spending such as holidays can also be considered.
Buy an asset reducing lifetime annuity where the full asset value reduces over the life of the annuity.

Case Study

Jim and Lynn own there own home and have total assets of $650,000 outside their home. Their current age pension is $20,271 combined. After 1 January 2017 this will reduce to $12,802. By investing $12,500 into a KeyInvest Funeral Bond, gift $10,000 and make $10,000 of improvements to their home, the post 1 January 2017 pension would be $15,337 combined, an increase of $2,535 per annum.

The information contained in this publication is based on the understanding KeyInvest (ABN 74 087 649 474 AFSL No. 240667) has of the relevant Australian legislation as at the date shown in this publication.

The information contained in this publication is of a general nature only and is intended for use by financial advisers and other licensed professionals only. It must not be handed to clients for their keeping nor can any copies of sections of this publication be given to clients. KeyInvest is not a registered tax agent under the Tax Agent Services Act 2009. We recommend that your client be referred to their registered tax agent or legal adviser prior to implementing any recommendations that you may make based on the information contained in this publication.