Who are the winners and the losers?
The Government has now passed law to give effect to changes to Centrelink’s asset testing from 1 January 2017. Changes to the asset test could mean certain Centrelink/ DVA clients, by virtue of their assets, will receive a lower age pension entitlement or be cut-off from the pension altogether.
What are the changes?
From 1 January 2017, the asset test free areas and the taper rate will increase. The asset test free area is the amount of assets above which allowances are not paid and pensions are reduced.
The asset test free areas are to increase to:
- $250,000 for a single homeowner
- $375,000 for a homeowner couple
- $450,000 for a single non-homeowner
- $575,000 for a non-homeowner couple
Clients will be subject to a new taper rate of $3 for every $1,000 (currently the taper rate is $1.50 for every $1,000) above the new asset test free areas.
Does this impact clients targeting a Centrelink allowance?
Clients that are targeting an allowance (eg Newstart) may benefit from the increase to the asset test free area (assuming their income test is not a concern). This is because these clients will be afforded more breathing space under the ‘sudden death’ assets test.
How will the changes impact clients that are receiving a Centrelink pension?
To answer this question, we need to draw a distinction between those clients with savings that are predominantly subject to Centrelink’s income test rules, such as those with non-grandfathered account based pensions, and those that are not. Let’s first consider the latter group of clients.
You might be an age pensioner with savings primarily tied up in grandfathered account based pensions. They were commenced prior to 1 January 2015 and therefore continue to be assessed in accordance with the deductible amount rule; no deeming applies. Or perhaps you have rental properties or purchased annuities where the net income declared to Centrelink is very minimal after deducting allowable amounts.
Based on our analysis, the tipping point for these groups of clients is $454,000 (couple homeowners). For couple homeowners, this means that those couples with:
- combined savings of between $297,000 and $454,000 are better o under the announced reform
- $375,000 in assets stand to bene t the most with a $117 per fortnight ($3,061 per year) increase to their current age pension entitlement
- assets in excess of $454,000 are adversely impacted by the announced reforms and will have comparatively lower age pension entitlement.
Click to continue reading or to download our complete factsheet: Overview of 1 Jan 2017 changes to Centrelink means testing
With the asset test changes coming in on 1 January 2017, the importance and focus of this test becomes even more relevant for clients. Any strategies or steps to reduce client’s assets should be considered earlier rather than later.
The Government has stopped short of proposing any changes to the assessment of the family home. Further reform of the aged pension system is needed so that we stop penalising older Australians who want to move into smaller, more appropriate housing and use the equity in their family home to better support themselves.
Call OBT’s Financial Planning team in Gatton on 5462 2277 to find out where you stand.
Source IOOF TechConnect