If you are currently 65 or over (the age pension age at present), to qualify for the age pension payment from the Federal Government you have to undergo tests regarding how much you earn – an income test – and what you own – an assets test.
The amounts you earn or own can determine your eligibility for a full- or part-age pension. The test that produces the lowest result is the one used to determine your rate of age pension.
The assets test includes the value of most assets you own, excluding your home. Under the test, if your assets are within the assets test free area, your age pension is not reduced. For every $1,000 of assets that you have above the assets test free area, your age pension reduces by $1.50 per fortnight, until it reaches nil.
The assets test free area and the assets taper rate – the rate at which pensions are reduced - will increase from 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)
A new taper rate of $3 per fortnight for every $1,000 above the new assets test free areas will apply. This effectively doubles how quickly your age pension reduces as your assets increase under the assets test.
What assets are included?
- 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
Things to consider
For some people, the changes might mean an increase in the amount of age pension you receive after 1 January 2017, although some will remain the same and some pension payments will reduce, or be cut off entirely, under the changes.
Strategies to reduce assessable assets may be up to twice as effective under the new rules compared with the current rules.
If you are thinking of investing or have investment strategies mapped out to help provide an income in retirement, you should talk to a financial planner to discuss how the assets test changes might affect you.
You might need to consider:
- Replacing lost income
- Putting in place strategies to manage your assessable assets
You might want to think about whether you will need to work for more years before you retire or if you need to adjust your budget for the lifestyle you wanted to achieve in retirement.
What does it mean for health entitlements?
If you lose your income support payment (for example - the age pension) as a result of the assets test changes, the government will provide you with a Health Care Card.
If you are over the age pension age, you will also get a Commonwealth Seniors Health Card. Both cards will not be subject to the usual income test requirements.
These cards offer discounts on prescription medicines and other medical expenses, and a range of private and State Government health, household, transport, education and recreation concessions.