Changes to the assets test have come into effect as of 1 January 2017 and could impact anyone who qualifies for the age pension.
If you are currently 65 years of age or more, you must undergo an income test and an assets test in order to determine whether you are eligible to receive an age pension payment from the Federal Government. The income test examines how much you earn, while the assets test is an assessment of your accumulated assets.
You may be eligible for either a full or part-age pension, depending on how much you earn and own. Keep in mind that your rate of age pension is determined by the test that provides the lowest result.
The value of most of the assets you own (excluding your home) will be included in the assets test. Your age pension will not be reduced as long as the value of your assets is within the assets test ‘free area’. However, if you go above the free area, a taper rate will apply.
The assets test free area and the assets taper rate has increased as of 1 January 2017.
The assets test free areas for a full pension will increase to:
- $250,000 for a single homeowner (previously $209,000)
- $375,000 for a homeowner couple (previously $296,500)
- $450,000 for a single non-homeowner (previously $360,500)
- $575,000 for a non-homeowner couple (previously $448,000)
On 1 January 2017 the taper rate for the pension assets test changed from $1.50 for $1,000 of assets to $3.00 per $1,000 of assets. This means your age pension will effectively reduce twice as quickly as it did pre 1 January 2017.
What assets are included in the asset test?
- Property, excluding your home
- Motor vehicles, boats, caravans
- Financial investments such as bank accounts, managed funds and shares
- Superannuation, if you’re over the age pension age
- Superannuation pensions and annuities (note, certain pensions and annuities purchased before 20 September 2007 may be partially or fully exempt)
- Business assets
- Household contents and personal effects, such as clothes or jewellery
These changes could result in people seeing an increase, decrease or no change at all in their age pension payments.
It is particularly important to discuss with your financial adviser how these changes may impact you if you have investment strategies currently in place or if you are currently considering investing.
Some important aspects to consider include how you could replace lost income or create strategies to better manage your assessable assets. It might be that you will need to work for longer than originally anticipated, before you are able to retire comfortably or you may consider adjusting your version of an ideal lifestyle in retirement with a lesser budget.
Are health entitlements affected?
If your payment is cancelled because of the changes to the assets test, and you are of age pension age, you will be automatically eligible for a non-income tested Commonwealth Seniors Health Card. This card provides discounts on medical expenses and other household, transport and recreation concessions.
If you are unsure whether the assets test changes will affect you or would like further information, please contact Darren Foster at Paris Financial 03 8393 1000.
Darren Foster, Senior Financial Planner, Paris Financial
Follow me on Twitter @darren_df