by Tony Kaye
THE new assets test has become an acid test for many who were receiving a part Age Pension.
Almost 90,000 individuals and couples around Australia who previously received a part Age Pension payment completely lost their entitlements in 2017 as a result of the Federal Government's changes to the pension assets test rules, it can be revealed.
In addition, hundreds of thousands of individuals and couples who were previously receiving a full pension have had their payments reduced. The revised pension assets test rules introduced last year also mean many Australians who had calculated their retirement income stream around receiving a part Age Pension in the future should seek out professional advice urgently to re-evaluate their financial position.
The Federal Department of Social Services has confirmed to Eureka Report that around 86,600 part rate age pensioners had their pension cancelled directly as a result of the assets test changes that came into effect on January 1, 2017. And, as we head into 2018, more retiring Australians will likely miss out on receiving any level of age pension.
The Federal Government set new limits on the amount of assets outside of a family home that could be held by couples or individuals before their pension rate was reduced. The amount of pension received is now reduced by $3 per fortnight for every $1000 over the new limits under what is known as the pension taper rate.
The Assets Test Limits
Using the latest official government data, our research has found that between the end of December 2016 and the end of June the number of recipients receiving a part Age Pension under the assets test fell from 486,031 to 321,106, a variation of just over 147,000. The DSS has claimed only part of that difference was due to the actual changes in the assets test, and that no full rate age pensioners have had their pension cancelled due to the assets test changes.
However, between December 2016 and mid-2017, the total number of Australians receiving an Age Pension dropped from 2.57 million to 2.49 million. The number of couples receiving a full or part-pension fell by around 61,000, from 1.43 million to 1.37 million, while the number of singles slipped from 1.13 million to 1.12 million.
In terms of assessing the Age Pension under the assets test, the DSS data shows that around 1.18 million recipients are couples owning a home. A further 660,000 are singles owning a home. These cohorts tend to have the highest value level of assets outside of their homes.
The pension assets test does not apply to the family home itself, but does to its contents and any other assets owned including property, vehicles, caravans, boats, superannuation holdings and funds in bank accounts.
Average superannuation balances at retirement already put many Australians close to or over the new asset test thresholds. But one of the biggest problems for those in this position is that having higher superannuation retirement savings may actually generate less tax-free income than those who only receive the Age Pension. In other words, having more can equal receiving less.
As such, the changes to the assets test could deter some individuals and couples from putting more money into their superannuation so they can still supplement their income with a pension.
But this a complex area, and it's definitely worth seeing a financial adviser to assess all your options.
Tony Kaye is the editor of Eureka Report, which is owned by financial services group InvestSMART. www.investsmart.com.au