Pension asset test changes
From 1 January 2017, the following changes to the pension asset test have been proposed:
- increase the ‘asset free areas’ for both homeowners and non-homeowners
- increase the asset test taper from $1.50pf to $3pf per $1,000 of assets over the lower threshold.
According to the government the proposed changes will result in some people either completely losing their age pension entitlement or having their entitlement to a part pension reduced. Conversely, other people may see a small increase to their entitlement. For example, the government has forecasted approximately:
- 91,000 will lose entitlement to the pension
- 235,000 will have their pension reduced
- 170,000 will receive a pension increase.
Asset free area changes
The proposed changes to the asset free area (the lower assets test threshold) are:
- For homeowners – the asset free area is proposed to increase from $202,000 to $250,000 for singles and from $286,500 to $375,000 for couples. This represents an increase in the lower assets test threshold of $48,000 and $88,500 for singles and couples respectively.
- For non-homeowners – the asset free area is increasing from $348,500 to $450,000 for singles and from $433,000 to $575,000 for couples. This represents an increase in the lower assets test threshold of $101,500 and $142,000 for singles and couples respectively.
For those with lower levels of assets, these changes may result in an increased rate of age pension.
The government has also confirmed the comparatively larger increase in the lower assets test level for non-homeowners is in recognition of higher living costs.
Asset test taper
The asset test taper rate (the amount by which a person’s pension entitlement decreases under the assets test) is proposed to increase from $1.50pf to $3pf per $1,000 of assets over the lower threshold.
Under these proposed changes the asset test taper rate will return to 2007 levels and will result in a substantial reduction in the upper assets test threshold.
This table sets out the current and proposed asset test thresholds:
|PENSION ASSET TEST|
|Current – Lower threshold||Proposed – Lower threshold||Current – Cut-off limit||Proposed – Cut-off limit*|
* Based on 1 January 2017 rates
The government estimates that approximately 12% of pensioners will lose entitlement to the pension as a result of the changes to the asset test.
These people will automatically be issued with a Commonwealth Seniors Health Card, or a Health Care Card for those under pension age.
Previously announced changes to income test free areas and deeming thresholds
Due to the changes in the pension asset test, the government will not proceed with changes to the pension income test free areas and deeming thresholds that were announced in the 2014 Federal Budget.
It was previously announced that the Government would freeze indexation of the pension income test free area for 3 years from 1 July 2017. In addition, deeming thresholds were proposed to be reset from 20 September 2017 to $30,000 for singles and $50,000 for couples.
Defined benefits scheme income test treatment
From 1 January 2016, the level of income that can be excluded from the pension income test will be capped at 10%.
The Government claims an anomaly was unintentionally created in 2007 which allowed some people to exclude a large percentage of their defined benefit income stream from the pension income test.
The Government states that around 65% of income support recipients with payments from defined benefit schemes have deductible amounts of 10% or less and will not be affected by this measure.
Department of Veterans Affairs pensions and defined benefit pensions paid by military superannuation funds are proposed to be exempt from this measure.
From 1 January 2017, those affected by proportional pension portability will have their rate of pension reduced after six weeks from leaving Australia rather than the current 26 week period.
Affected payments include Age Pension, Wife Pension, Widow B Pension and the Disability Support Pension.
People affected by proportional pension portability include those who have less than 35 years Australian Working Life Residence. Australian Working Life Residence refers to the period of time a person has resided in Australia between the ages of 16 and age pension age.
Pensioners overseas at the date of implementation are not affected unless they return to Australia and make a subsequent overseas trip.
Cessation of low income supplement
From 1 July 2017, the low income supplement will no longer be available.
The low income supplement is a $300 tax exempt payment to assist people in low income households. The supplement is available to people who do not receive the Clean Energy assistance through tax reforms or other Household Assistance Package payments.
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