Aged Pension assets test

02-Mar-2018 Are you caught out by the Age Pension assets test?

The stricter Age Pension assets test came into force more than a year ago, but it is probably only now that the impact of this change is being felt, especially by middle-income wage earners.
This could put you in a situation where if your assets are at a certain level, you won’t qualify for the Age Pension. It is thought that this could affect up to 300,000 retirees.

Could this apply to you?
It is worth looking at your situation closely to see if the changes do affect you.
The Self-Managed Superannuation Fund Association (SMSF) has expressed concern that the changes to the Age Pension asset test rules (since 1 January 2017) may be actively discouraging middle-income earners from saving to be self-sufficient in retirement.
If you earn what is considered to be an “average” income you will most likely be caught by the asset test.

But what is a middle-income?

Individuals with an average taxable income of $46,000 in 2017/2018 fall within this category and could also be hit with an increase in tax rate of 3.2 per cent by 2021/2022.

Currently, the Age Pension assets free area for a single homeowner is $253,750 and $380,500 for a homeowner couple. For non-homeowners it is $456,750 (single) and $583,500 (couple). The Age Pension begins to phase out at $3 per fortnight for each $1,000 of assets over the relevant assets test threshold.

The table below outlines the current and proposed thresholds for the full Age Pension:

If you are:                                                                    Homeowners                                                        Non-homeowners

Single                                                                                 $253,750                                                                  $456,750
in a couple, combined                                                        $380,500                                                                  $583,500
illness separated couple, combined                                   $380,500                                                                  $583,500
one partner eligible, combined                                          $380,500                                                                  $583,500
Source: Australia Department of Human Services

The table below outlines the assets test thresholds for the part Age Pension:
If you are:                                                                      Homeowners                                                        Non-homeowners
Single                                                                                 $552,000                                                                   $755,000
in a couple, combined                                                        $830,000                                                                   $1,033,000
illness separated couple, combined                                   $977,000                                                                   $1,180,000
one partner eligible, combined                                          $830,000                                                                   $1,033,000
Source: Australia Department of Human Services

Here are some examples of how you could be affected by taper rates.

What this means is that if you are a single person who owns your own home, you would currently be better off in terms of total retirement income having $300,000 in super than by having $400,000, $500,000 or even $600,000 in super. In fact you could be hit hardest if you have $550,000 in super as you will receive less total income than a single person with only $300,000 in super.
If you are a home-owning couple, for example, who have superannuation assets of between $380,500 and $830,000, the taper rate creates a “black hole” (equivalent to 7.8% a year), reducing your pension entitlement at a rate exceeding the income you can earn from your super balance above the asset free area. This may provide an incentive to shift investments to excluded assets such as the family home.

Plan your future
The SMSF Association believes that a more appropriate mechanism to integrate superannuation and Age Pension means testing would be a move to a single means test that applies a deeming rate to financial and non-financial assets, getting rid of the assets test altogether.
Now is good time for you to consider whether these changes could apply to you

We can help you to assess your assets and plan well for your retirement.

If you have questions, please feel free to contact us.

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