The pending changes to the age pension asset test that will leave hundreds of thousands worse off has prompted a rush on products such as funeral bonds and other asset exempt options as older Australians look to cushion the blow.
That’s the word from Andrew Meinel, General Manager of Financial Services at KeyInvest, who said the changes – along with financial advisors recommending funeral bonds as an effective safeguard – have seen a 25 per cent growth in this area over the past few months.
And, he predicts, the clamour will increase as the change date of 1 January 2017 nears.
The age pension asset test determines eligibility for the age pension and other social security benefits and applies to assets held outside the family home. It allows individuals to hold assets up to the lower threshold and still receive the full age pension.
From 1 January 2017, this reduces by $3.00 per fortnight (previously $1.50 per fortnight) for each $1,000 above the lower threshold, until assets reach the cut-off threshold, at which point no age pension will be received.
“While an increase in the lower threshold means some will be better off under the new arrangement, almost double the amount are expected to be worse off,” Mr Meinel said.
“For those close to the cut off threshold, the impact is significant, with a single homeowner in this category potentially losing up to $9,400 per annum, joint homeowners a combined $11,500, a single non-homeowner around $7,400 and joint non-homeowners a combined $13,500.”
He noted, however, that there are a number of measures available to maximise the age pension under the asset test and diminish the impact of the changes.
“And it all comes down to reducing your assets and so remaining below the cut off threshold,” Mr Meinel added.
These include funeral bonds such as those offered by KeyInvest, gifting, and upgrading the family home.
“We have witnessed a substantial increase in funeral bonds enquiries and sales in recent months as retired Australians or those approaching retirement realise that if they purchase a funeral bond up to $12,500 per individual or member of a couple, they’ll reduce their assets and be better off financially,” Mr Meinel said.
“They can also gift to their children a maximum of $10,000 per year in a five- year cycle, limited to a total of $30,000 in the cycle; and spending money on home improvements will further whittle away the assets and keep them below the cut off threshold.”
By way of example, Mr Meinel explained that a couple that owns their home and has total assets of $650,000 outside the home will currently receive a combined pension of $20,596 per annum, reduced to $12,932 per annum on 1 January 2017.
However, by investing $12,500 each into a KeyInvest Funeral Bond, gifting $10,000 to their children and making home improvements to the value of $10,000, they’ll receive a combined pension of $16,442, which represents an increase of $3510 per annum.
“As it’s a complex field, our recommendation is to obtain financial planning advice from the experts and professionals as they’re best placed to help you ensure that your money outlasts your retirement years,” he said.
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.