Changes to the assets test threshold

With the changes to Centrelink's asset testing coming from 1 January 2017 set to lower (or even eliminate) the age pension entitlement for your clients, it's important to put in place the strategies your clients need to mitigate this risk – and those strategies that reduce clients' assets should be considered sooner rather than later.

What are the changes?

There are two main changes. From 1 July 2017, your clients will qualify for the full age with more assets:

  • $250,000 for a single homeowner (up from $202,000*)
  • $375,000 for a homeowner couple (up from $286,500*)
  • $450,000 for a single non-homeowner (up from $348,500*)
  • $575,000 for a non-homeowner couple (up from $433,000*)

* Rates at 20 March 2015

However the rate of reduction in the pension above these amounts will double to $3 for every $1,000 (currently the taper rate is $1.50 for every $1,000) above the asset test free areas.

Not surprisingly, on average, the changes come out in the Government's favour with the 'upper limit' of assets, where the part-pension will cut out, will decrease from $1,151,500 to $823,000 for homeowner couples and from $775,500 to $547,000 for homeowner singles.

Winners and losers - what are tipping points?

Generally speaking, the changes are a win for pensioners with lower levels of assets but those with higher levels of assets may lose out. However the true impact of these changes depends on the individual circumstances for your clients.

Clients with asset test concerns

Married homeowners with a combined savings of between $286,500 and $470,000 are better off ($375,000 in assets benefit the most with a $132 per fortnight gain).

Married homeowners with a combined savings above $470,000 are adversely impacted.

Clients with income test concerns

single home-ownerCalculations are based on pension rates as at 20 March 2015

Single home-owners with savings from $160,000 to $232,000 may not benefit (at these levels the income test is more stringent with lower age pension entitlement compared with the asset test.

Single home-owners with savings from $232,000 to $275,000 – marginally better off as asset test is more stringent in this range.

couple home-ownerMarried home-owners with $280,000 – $300,000 in savings will not necessarily benefit.

Married home-owners with $300,000 – $403,000 will marginally benefit.

What if deeming rates double?

Be aware that if deeming rates double for the term of the income stream to 3.5 per cent and 6.5 per cent, the income test will impact single and married clients at even higher asset levels.

Hence, the new asset test changes will not benefit clients because it is the income test and then the new asset test which provides the lowest pension entitlement.

What are some key considerations for your clients?

Grandfathered account based pensions?

Some clients may have locked in grandfathered account based pensions prior to 1 January 2015. For these clients, any cancellation of their age pension entitlements will forego the grandfathered status of their account based pensions.

Think about: Deeming rates are at all-time lows however they are anticipated to increase over time. These clients may be vulnerable to rising deeming rates if their asset bases depleted to a level which placed them in the relevant income test zone.

Reduction of assets

Following the changes, for every $1,000 reduction in assessable assets, clients may receive an additional $3.00 per fortnight of pension (currently $1.50 per fortnight of pension).

Think about: asset test reduction strategies will become more important.

Commonwealth seniors health card (CSHC)

Clients who lose their pension entitlement on 1 January 2017 as a result of the changes will be automatically issued with a CSHC, or a Health Care Card for those under age pension age. They will be exempt from the usual income test requirements for these cards indefinitely.

Think about: clients and their partners who are yet to receive income support and who apply for the CSHC must qualify under the CSHC income test (based on taxable income concepts).

Pensioner bonus scheme (PBS)

From 1 January 2017, changes to the asset test could mean certain clients, by virtue of their assets, receive a lower age pension entitlement or be cut-off from the pension altogether.

Think about: Clients who have previously registered in time for the PBS and expect to claim for this payment should consider applying for their bonus (where eligible) sooner rather than later if their level of assets preclude them from the pension.

Residential aged care members

For residents in residential/ home care, receiving lower or no age pension could translate to lower care fees. However, receiving less or no pension will put pressure on cashflow.

Think about: Rent out the home instead of selling it as concessional Centrelink and aged care treatments apply. Refundable deposits are also exempt from Centrelink asset testing but may increase the means tested care fees.

The information contained in this newsletter is provided on behalf of the IOOF group of companies and is intended for financial adviser use only. It is given in good faith and has been prepared based on information that is believed to be accurate and reliable at the time of publication. Any examples are for illustration purposes only and are based on the continuance of present laws and our interpretation of them at the time.