The commencement of 2017 will see some significant changes to means testing for Social Security pensions (including the Age Pension).
Uncertainty around income can be unsettling for those receiving a pension or considering retirement. That’s why it’s important to understand if and how you might be impacted by the new rules so that you can review your game plan before they change.
What’s changing?
The Government is making two changes to the assets test which will take effect from 1 January 2017.
Pensioners need to be aware of how the changes impact their entitlements. For some, the changes will create a cashflow shortfall and may have a significant impact on standard of living.
The lower assets test threshold refers to the level of assessable assets that can be owned before pension entitlements are affected. Pension payments are reduced once assets exceed this level.
Encouragingly, it is estimated this change will result in around 50,000 part pensioners qualifying for a full pension. Those already on a full pension will be unaffected by this change.
Thresholds differ, depending on your relationship and home-ownership status. Here’s how the new levels compare to the current ones:
| Status | Current lower asset threshold | Lower asset threshold from 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 |
The taper rate is the rate at which pension entitlements reduce where assessable assets exceed the lower threshold. The rate will be increased from $1.50 to $3 per fortnight for every $1,000 in assessable assets above the asset threshold.
As a result of this increase the pension the upper threshold is effectively lowered, meaning the pension cuts off at a lower level of assets. It is estimated that approximately 91,000 part pensioners will no longer qualify for the pension and a further 235,000 will have their part pension reduced.
Once again, the upper threshold will depend on an individual’s relationship status, home-ownership status and whether they are asset tested or income tested.
| Status | Current upper assets threshold | Estimated upper assets threshold from 1 January 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 |
Pensioners who lose entitlements as a result of the changes will cease to be eligible for the Pensioner Concession Card (PCC). They will, however, automatically qualify for the Commonwealth Seniors Health Card (CSHC) or if less than pension age, the Health Care Card (HCC).
What about income tested pensioners?
While the changes are more directly relevant for assets tested pensioners, those who have their pension entitlement determined under the income test may not be unaffected. The changes could mean that certain pensioners become asset tested and this could lead to a loss of some or all of their entitlements.
What can be done?
Thankfully, there are a number of potential strategies that could be put in play to reduce the impact of the new rules.
Strategies which reduce an individual’s or couple’s assessable assets, like gifting or expenditure on the main residence, may potentially help. As every situation is different, it’s important that your game plan is both appropriate and sustainable for your circumstances.
Don’t get caught offside when the rules change, talk to your financial adviser about your game plan.
