Not long after digesting their Christmas dinners, many older Australians will have to digest the unpalatable fact that they may lose part – or even – all of their aged pension in 2017.
From January 1, 2017, new rules around income and asset tests will come into force, and more 300,000 retirees on part pensions will lose some or all of their Age Pension entitlements.
At the same time, more than 50,000 part pensioners will move to full pensions as those thresholds also change.
The changes have led to a flurry of activity with many people – on the downside of the equation – thinking about actually reducing the assets they hold, outside of the family home, in a bid to retain their benefits.
Here are the changes in a nutshell:
- For single people who don’t own their own home and who are on a part pension, the asset limit for claiming a part pension will be $742,500 – down from $945,250.
- For a non-homeowning couple, the limit will be $1.016 million against $1.33 million previously
- For a single person who owns their own home, the asset threshold will move to $542,000 from $793,750
- For a homeowning couple, the new threshold is $816,000 compared with $1,178,500
- At the same time, some retirees on part pensions will move to full pensions under changes which increase their asset thresholds.
For those likely to lose benefits, the question is whether they should reduce their assets so they can hold on to their part pensions.
This is particularly relevant for homeowners.
Take a single person who owns their own home, and who has the maximum assets of $793,750 under the old rules and has been claiming a part-pension.
The new threshold of $542,000 is a cut of $251,750, so the question at its most basic is: “Should I reduce my assets by this amount so I can hang onto my part pension.”
$250,000 is a significant amount, but it can easily be soaked up with major home renovations which, while they would increase the value of the property, would be outside of the new asset test.
Other ways to reduce assets would be to go on a holiday, pre-pay funeral expenses or gifting money to family.
A majority of people will simply have their pensions reduced under the new rules, and for them the decision is all about balancing things out.
Is what they stand to lose in ongoing payments from the Government worthwhile enough to reduce their asset base, outside of the – still exempt – family home?
Something to chew on as you gnaw on that turkey leg and the grandchildren put the paper Christmas crown on your head and pop streamers in your e