With the first deficit Budget in many years, we expected some pain, although pensioners were hoping for more gain with an increase in pension payments.

So what happened in the Budget and what does it mean for you?

Pensioners
Centrelink and DVA pensioners will receive pay rises from 20 September and several allowances will be combined to make payments simpler. Married pensioners will receive a combined increase of $10.14 per week while single pensioners will receive between $10.14 and $32.49 per week, depending on your income and assets.

New pensioners will need lower levels of income to qualify for a pension due to changes in the income test formula. But if you are already on a pension, transitional rules apply so that you will continue to receive your current payment plus the $10.14 per week increase.

Self-funded retirees
Good news was also given to self-funded retirees. Last year’s Budget proposal to include income stream payments in the income test for the Commonwealth Seniors Health Card will not proceed.

If you are paying an account-based pension from your superannuation the minimum payment you have to take in 2009/10 is half the normal rate. If you can afford to live on a lower pension this may help you to defer selling assets that have lost value for a bit longer. This might give the assets time to recover in value.

Pre-retirees
Pre-retirees are likely to be happier with the things that didn’t change than the things that did change. The 1 July tax cuts are still happening, but building up your superannuation might be slower because of changes starting on 1 July 2009:

· the amount you can salary sacrifice (without heavy tax penalties) is cut in half – so review your plans to make sure you don’t put in too much
· the limit for after-tax contributions was planned to increase to $165,000 per year, but will now stay at $150,000
· if you are eligible for the co-contribution, the government will cut their contribution so they only match your eligible contributions $1 for $1 (currently they put in $1.50)

If you are single and have income over $75,000 (or married with income over $150,000) your private health insurance could be more expensive from 1 July 2010 as you might lose some or all of the rebate on premiums. Even if you do, the Medicare Surcharge levy is being increased up to 1.5% (depending on your income), so it might still be cheaper to take out the insurance than to pay the extra Medicare.

And for all of you who were born on or after 1 July 1952, the age pension age is increasing from 65 to 67, so you might have to work a bit longer or save a bit harder.

Louise Biti CFPÒ MTax BEc BA(AS) Dip FP
Director
Strategy Steps

Note: these changes are all still proposals and legislation needs to be passed and further changes or clarification could be made.

Disclaimer: The information in this article is general and does not take into account your particular circumstances. We recommend specific tax or legal advice be sought before any action is taken and refer to the relevant Product Disclosure Statement before investing in any product.