Are you prepared for the looming pension changes?

On 1 January 2017 up to 326,000 pensioners may have their entitlements reduced. So who is affected and what can they do about it?  

A recurring theme in recent years from our federal legislators has been the question of sustainability of the age pension.

Changes to retirement ages have been seen as necessary by both sides of politics and other changes to reduce budget costs are no doubt on the cards.

One such change that is already locked in is the alteration to assets test rules. While some age pensioners stand to benefit from the change, a much greater number – up to 326,000 – will potentially be worse off. D-day is 1 January 2017, so it helps to be informed about what will happen, so that you can take action to avoid or limit any impacts on your standard of living.

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Now is the time to get organised before the changes are implemented

It’s not just retirees who need to be aware. Anyone approaching retirement age may need to adjust their strategy too, so that they can mitigate the effects on their retirement income.

What are the assets test changes? 

There change has two components:

1. An increase in the lower assets test threshold
This means that a pensioner will be able to have a higher level of assets before their age pension is affected. The result is that a limited number of people will move from a part pension to a full pension.

Marital status and home ownership situation Current lower asset threshold Lower asset threshold 1 Jan 2017
 Single homeowner   $205,500  $250,000
 Single non-homeowner  $354,500  $450,000
 Couple homeowner  $291,500  $375,000
 Couple non-homeowner  $440,500  $575,000

2. An increase in the assets test ‘taper rate’
The taper rate refers to the rate at which your pension will gradually reduce once you go above the minimum assets test threshold. This rate is effectively being doubled from a $1.50 reduction per $1,000 in assets over the lower threshold, to $3 per $1,000. This will mean that the upper threshold (at which the pension will cut out altogether) will be reduced substantially and some pensioners who currently receive a part pension will lose their pension altogether.

Marital status and home ownership situation Current upper asset threshold Lower upper threshold 1 Jan 2017
 Single homeowner   $783,500  $547,000
 Single non-homeowner  $932,500  $747,000
 Couple homeowner  $1,163,000  $823,000
 Couple non-homeowner  $1,312,000  $1,023,000

What if your pension entitlement is governed by the income test? 
Those whose pension is calculated via the incomes test rather than the assets test may not necessarily escape the impact of the above changes. The movement in thresholds may change your assessment basis and move you from the income to an assets test, so you may still have changes to your benefits.

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Pensioners on the income test should also be prepared for changes 

What about concession cards?
Those who are affected by the threshold changes and lose their pension entitlement will also lose their Pensioner Concession Card, although on the plus side they will be eligible for the Commonwealth Seniors Health Card.

You may be able to limit the effects
These changes may well require you to rethink your retirement income and lifestyle to some degree, so it is best to start preparing now. The first step is of course to find out if you will be affected. If you are likely to be caught in the net then there may be ways of limiting assessable assets and reducing any losses.

This could include re-directing income into a partner’s super if they have not yet reached pension age, shifting assets into the family home by spending on home renovations, gifting to relatives (within prescribed limits) and even taking advantage of funeral prepayment rules.

Get some help early on
Whether you are approaching retirement or already there, the best idea is to act early to gain some clarity on whether you will be affected and then take actions to protect yourself.

A financial planner can be a useful ally in dealing with this. They can offer expertise in social security rules and strategies for gaining the maximum entitlements, so that you can maximise your overall retirement income. Crunch time is fast approaching, so don’t leave it too late.

(Featured image: Kim Britten/Shutterstock)

What are your thoughts on the new rules? Tell us what you think below.