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. Here we look at current thresholds to keep in mind.
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 https://www.humanservices.gov.au/individuals/enablers/assets
The table below outlines the assets test thresholds for the part Age Pension:
|
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 https://www.humanservices.gov.au/individuals/enablers/assets
Taper rate
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.
Melbourne-based SaveOur Super group has engaged in a debate with Assistant Treasurer, Michael Sukkar, on this issue. Sukkar has said that the Age Pension is “not supposed to support retirees with a higher level of assets to maintain their capital base”. Instead, the steeper taper rate is meant to “encourage people to draw down their savings more rapidly”. While this debate may not lead the current Government to change super and pension rules, it is good time to contact us. We can help you to assess your assets and plan well for your retirement.
Courtesy of Thomson Reuters