Retirees need to understand the implications changes to the assets test linked to the age pension commencing on 1 January 2017 will have for them and make the necessary preparations now, a major banking group has said.
The age pension rule changes, handed down in the 2015 federal budget, dictate new thresholds of assets such as superannuation, bank accounts, cars and investment properties retirees can own before they lose a share of their age pension entitlement.
Under the new rules, individuals stand to lose $3 a fortnight of the age pension for every $1000 of assessable assets they hold over the test threshold compared to the $1.50 per fortnight reduction they are currently experiencing.
However, while the loss of age pension entitlement has been doubled, the asset test threshold has been increased.
“It is important for retirees to plan for the changes by checking their position with Centrelink and discussing with a financial adviser what strategies are suitable for their situation,” Commonwealth Bank of Australia executive general manager Linda Elkins said.
“There are a number of strategies retirees can implement now to help them retain or improve their cash flow when the asset changes take effect.”
According to Elkins, upscaling the family home was something retirees should consider as it was an item exempt from the assets test.
Elkins suggested buying a more expensive residence or undergoing home improvements were two activities that might be relevant in this scenario.
She also suggested a superannuation recontribution strategy from an older to a younger spouse might also be appropriate.
Under this strategy, the older spouse would withdraw some of their retirement savings benefits and recontribute them to the younger spouse’s superannuation fund as long as this individual was still in accumulation phase, making it an asset exempt from the test.
Government estimates suggest the changes to the rules will adversely affect 326,000 Australians.
However, Elkins pointed out there was an upside even if individuals lost their entitlement to the age pension as a result of the amendments to the framework.
“The good news is that people who lose the age pension as a result of the assets test changes will be automatically issued with both a non-income tested Commonwealth Seniors Health Card and a Health Care Card, which means they will have access to discounted prescriptions and may also receive discounts on medical expenses along with a range of household, transport, education and recreation concessions,” she said.
