Noel Whittaker is the author of Wills, Death & Taxes Made Simple and numerous other books on personal finance. Email: [email protected]
Christmas is coming early for many seniors, with big changes to the age pension from 1 July. It’s an interesting change; the pension rates themselves are not changing, but the thresholds that determine how much pension is paid have been adjusted for inflation.
The result is that some part-pensioners will now move to a full pension, and some people who are currently ineligible for a pension, because they are over the assets test cut-off point, will be eligible to start claiming a part-pension.
The big news is that every couple who are asset tested part-pensioners now should get an up to $34.50 a fortnight increase in their pension, while singles may get up to $22.50 a fortnight. These benefits are available only to part-pensioners because they are due to a change in the taper rates, not to an increase in the amount of pension payable. The changes to income-tested pensioners will be smaller, but they will still happen.
The assets test cut-off points will change too. The lower level at which the pension starts to reduce has gone up from $470,000 per couple ($314,000 for singles) to $481,500 and $321,500, respectively. The upper level at which eligibility for a pension cuts off moves from $1,047,500 for a homeowner couple to $1,059,000, and for singles, the numbers go from $697,000 to $704,500.
The new numbers also increase the amount pensioners can earn before their pension starts to reduce under the income test. For a couple, the income test cut-off point rises to $380 a fortnight – for singles it increases from $212 to $218 a fortnight.
An important thing to note is the way the tests intersect. Centrelink tests you on both the income test and the assets test, and then applies the one that gives you the least pension. But the tests tend to be out of kilter, which can lead to some anomalous results. For example, if you’re asset-tested, deeming is not relevant – it’s only used for the income test.
Furthermore, the rule that a pensioner couple will start to lose their pension once their income reaches $380 a fortnight does not affect an assets-tested pensioner.
Think about Jack and Jill, who own their home and have $700,000 in total assessable assets, of which $650,000 are financial assets and subject to deeming. The couple are subject to the assets test, and their pension will rise to $538.35 each a fortnight after 30 June.
Because they are assets tested, they can earn $44,000 a year with no adverse effect on their pension. Under the proposed adjusted deeming rules, their $650,000 in financial assets would be deemed to be earning $12,506 a year, which gives them space to earn an additional $31,494 a year with no effect on their pension; potentially more when factoring in the work bonus incentive.
If you go to my website, www.noelwhittaker.com.au, you can download the new pension charts and also play with the age pension calculator and the deeming calculator, both of which have been updated with the new numbers.
Many pensioners deprive themselves of future income by overvaluing their personal assets. The value of your furniture should be based on what you’d get for it at a garage sale on a wet Saturday morning—usually no more than $5,000. For assets-tested pensioners, every $10,000 reduction in assets is worth about $15 a week in extra pension.
So, by investing $15,500 in a funeral bond and giving $10,000 to charity or your kids, your pension could increase by $38.25 a week. That’s a guaranteed return of 7.8% on your money.
About the author: Noel Whittaker, AM, is the author of Wills, death & taxes made simple and numerous other books on personal finance. An international bestselling author, finance and investment expert, radio broadcaster, newspaper columnist and public speaker, Noel Whittaker is one of the world’s foremost authorities on personal finance. Connect via Twitter or email ([email protected]). You can shop his personal finance books here.
Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. Always seek professional advice that takes into account your personal circumstances before making any financial decisions. The views expressed in this publication are those of the author.
