Sunday, May 10, 2015

So who loses nearly $10,000 pa under the proposed new pension rules?

The Federal Government is tightening the age pension assets test. The Government has estimated that 91,000 pensioners will completely lose their entitlement and a far greater number of age pensioners - nearly 250,000 - will receive significantly less. While a smaller number of age pensioners will receive a modest increase.

So let’s have a quick look at how much the majority of pensioners will lose. The following table is a very basic analysis of the implications. The table is for a home owning couple who have the following level of assets. For demonstration purposes we will assume they have no other assessable income or assets.

It has been proposed by the Government that the pension asset thresholds - or cut-off-points - are to be adjusted.

Age pensioners who have assets of less than $286,500 - the current ‘lower’ threshold - will have unchanged benefits as a result of this change.

Age pensioners who have assets of value up to the new threshold - $375,000 -may receive slightly more. For example, the table shows couples with assets of $350,000 will receive an additional $2,500 pa - or approx. $50 each a week more. 

Then the application of the new upper threshold ‘kicks in’. For example those with an asset level of $500,000 will receive nearly the same while those couples with assets of $800,000 will receive approx. $10,100 pa less - approx. $220 a week less.

Table - Couples who own their home:


Assets
Current Rate
Pension $pa
Proposed Rate
Pension $pa
Difference
Pension $pa
$250,000
$33,700
$33,700
$0
$350,000
$31,300
$33,700
$2,500
$450,000
$27,300
$28,400
$1,100
$500,000
$25,400
$24,800
-$500
$600,000
$21,500
$17,700
-$3,800
$800,000
$13,600
$3,500
-$10,100
$1,000,000
$5,900
$0
-$5,900







Now the above does not take into consideration other recent changes to the pension such as the application of deeming rates to allocated income streams. For example, some of the above asset levels may be associated with ‘super’. In this case the pension may be additionally impacted by additional deemed income. Further the deemed rates remain high in comparison to ‘cash rates’.

We have already seen evidence of financial planners adjusting 'asset' levels to accommodate these revised thresholds. We may even see even more luxurious 'granny flats' being built?

A new age pension calculator that predicts your revised pension under these new rules is being developed. Go to our web site for more information