Pension changes were announced in the 2015 Budget and apply from 1 January 2017.

The Assets test and the Income test are the two tests, and the one that produces the lowest Age Pension applies.

We discuss the Assets test here, and a number of simple strategies that may improve the pension entitlement from 1 January 2017.

Upper Asset Limits

Around 300,000 retirees are expected to lose their Age Pension from 1 January 2017, because the value of allowable assets for homeowners reduces from $1,178,500 to $816,000 (couples), and from $793,750 to $542,500 (singles).

For non-homeowners, the threshold for couples reduces from $1,330,000 to $1,016,000, and singles from $945,250 to $742,500.

Lower Threshold

A full pension is now available for assets below these thresholds (excluding the family home):

                               homeowner               non-homeowner

      couples           $375,000                    $575,000

      singles            $275,000                    $450,000

Rate of Pension Reduction

Once the minimum level of assets is reached, pensions reduce by $3 per fortnight for every $1,000 of assets above the lower threshold.

Possible Strategies

1. Invest in Lifetime Annuities

These are classed as long-term income streams that are not subject to deeming and have a reducing asset value.

2. Re-Contributing to Super

If one spouse is below pension age, withdraw a lump sum from the older person's super and re-contribute to the younger spouse, as super is exempt in the accumulation phase until pension age is reached.

3. Change Investments

If you have assets above the threshold (lower or upper), it may be worth reviewing those assets and seeking a better return on them.  (You still have the same value of assets but you earn a higher return from them, which could partly compensate you for the loss of pension under the Assets test).

4. Change or Improve the Family Home

As the home is exempt from the assets test, purchase of a more expensive home or making improvements can result in reduced assessable assets.

5. Making Gifts

Gifts up to $10,000 a year or $30,000 over 5 years can be made without affecting the assets test.

Don't blindly jump into making changes.  Get good advice on your options.  Under the new Financial Planning rules.  Accountants can no longer give specific advice, but through licenced associates we can refer you to competent advisors.

(The above is general advice, and made without reference to individual objectives, financial situation or needs.  It should be seen as a general resource, not as a sole source of information.  To obtain advice particular to your situation, please contact your financial advisor or ask us for a referral to one we recommend.)