WEALTHIER part-pensioners will be the big losers on January 1 as the new asset tests for age pensions comes into effect.
Many will lose some or all their part-pension as the upper cut-off point for assets is slashed as a result of a doubling of the taper rate from $1.50 to $3 (figure 2).
The taper rate is the amount the pension is reduced for every $1000 in assets over the maximum assets amount allowed for a full pension.
At the other end of the spectrum, less affluent retirees will be better off, with many becoming eligible for a full pension as the amount of assets they can own before their pension is reduced, will increase.
The new assets tests allow single homeowners to have $250,000 in assets (up from $209,000) and home owning couples $375,000 in assets (up from $296,000) before their pension starts to reduce. The amount for single non-homeowners is $450,000 (up from $360,500) and couple non-homeowners $575,000 up from $448,000 (figure 1).
As The Senior’s finance columnist Noel Whittaker explained earlier this year, the changes to the upper cut off points will have a big effect on many people’s budgets.
The new taper figures mean that every $10,000 of assessable assets has an effect of $780 a year on the pension.
For example, an age pensioner homeowner couple with $750,000 of assessable assets currently receiving around $620 a fortnight pension would see their pension drop to $220 under the new rules – a loss of $10,400 a year.
Anyone who loses their pension will be entitled to a Commonwealth Seniors Health Card.
Advocacy groups have criticised the changes, with Council on the Ageing NSW chief executive Ian Day saying it was another example of the government looking to balance the books by targeting older people. A major concern was the assets changes being a disincentive for older people to downsize.
National Seniors chief executive Dagmar Parsons said older people who lose their pension will be more worried about outliving their savings.
“The loss of access to secure, regular income from the pension will be a huge blow and it is unrealistic to expect retirees to make up the shortfall in the current low interest rate environment,” she said.
“In some cases it is not possible to readily convert assets, such as household contents or personal effects, into an income stream.”
Ms Parsons said while those who lost their pension would automatically receive the Commonwealth Seniors Health Card, this did not provide access to many state-based concessions on electricity, water and rates.
National Seniors encourages those who may be affected by the changes to take stock of their assets and check that their values were up to date with Centrelink.
Assets test-free area for full pension
Pensions start reducing when assets are more than the following amounts:
PENSIONERS with significant assets have been receiving letters from the Department of Human Services since late October advising they might be affected by the January 1 assets test changes.
Anyone whose payment rate will reduce or stop will receive another letter this month with further information.
Department general manager Hank Jongen encouraged anyone concerned to go to humanservices.gov.au/rebalanceassets
Assets test limits for part pensions
Part pensions cancel when assets are more than the following amounts:
Don’t panic and ‘blow’ your assets
FINANCIAL commentator Noel Whittaker said despite the new assets test Australia still had one of the most generous pension schemes in the world.
Even after January 1, he said, a couple living in a million dollar home with $800,000 in financial assets such as superannuation can qualify for a part-pension and all the goodies that go with it.
He urged those who have their pension cut or lose it altogether not to panic and “blow” their assets on a range of items, from upsizing the family home and doing renovations to holidays.
Mr Whittaker said every $100,000 of assets a pensioner can spend is worth $7800 in extra pension – equivalent to a 7.8 per cent return and far better than money in the bank.
But he pointed out that if disposing of $100,000 produces $7800 a year in extra pension it would take almost 13 years to get the money back. “Who in their right mind would do that?”
Mr Whittaker warned of another potential problem in disposing of assets.
“The present system is unsustainable and it’s odds on that further tightening of pensions will be happening sooner rather than later.
“This may be by further tightening eligibility, or by finding some way to assess the family home.”
Under the changes:
- 171,500 part rate pensioners will receive additional support
- 91,300 current part pensioners will lose access to the pension
- 236,000 will have their part pension reduced
Figures are approximate and based on projections from the 2015-16 budget.
- Anyone who thinks they might be affected can go to www.noelwhittaker.com.au to calculate their own situation. First use the deeming calculator then the age pension calculator.
Pension not there to support your capital base: department
A DEPARTMENT of Social Services spokesperson said the age pension was there to help those who could not fully support themselves, not to support those with higher levels of wealth to maintain their capital base.
He said the upcoming changes would make the pension system fairer, better targeted and sustainable.
“Only people with significant levels of assets, other than their home, will have their pension reduced,” he said.
“The change recognises that they have greater capacity to support themselves.
“More than 90 per cent of pensioners will either be better off, or have no change to their pension. The changes will only affect those who have significant assets and collect a part pension.
“It is important to note that those most affected would only have to draw down around 1.8 per cent of their assets to make up for the loss of their part-pension.”
In line for energy supplement hokey-pokey?
One of the most concerning issues for many retirees has been whether they will lose their energy supplement under the assets changes.
The supplement – $14.10 for a single pensioner and $21.20 per couple per fortnight – was originally designed to offset any increase in power costs associated with the now repealed carbon tax.
The federal government has passed legislation which will remove the energy supplement from new recipients of the Commonwealth Seniors Health Card (CSHC) from March 20 next year.
Under the legislation, the supplement will continue to be paid to seniors who received a pension or held a CSHC on September 19 of this year.
It will also be paid to people who become eligible for a pension on or after September 20.
Those who receive a CSHC between September 20 and March 19 will get an energy supplement for the period they are eligible but will have the supplement removed from March 20.
Retirees over 65 who on December 31 were in receipt of a pension into which the energy supplement was paid, but lose their pension because of the assets test changes, will automatically be issued with a CSHC and will continue to receive the supplement from January 1.