Upcoming Centrelink concerns for Australian retirees

24/11/2016   Anthony Malvaso, Senior Financial Planner

While a majority of the Australian population will be ringing in the new year with grand plans and resolutions, hundreds of thousands of retirees aged 65 and over who currently receive a government Age Pension, will be feeling the full effect of changes to their Centrelink payments as of 1 January 2017.

More than 50,000 of this cohort will happily welcome the changes as they will be eligible to receive the full age pension – an increase from their current benefit; but roughly 300,000 people will see their part pension considerably reduce and a further 100,000 will lose their entitlements all together.

The government and mainstream media have focused on the good news that 50,000 more Australians will receive a full age pension, but what they have downplayed – or neglected to discuss at all – is the concern that the majority of retirees receiving a part-pension will be impacted negatively.

What’s the fallout?

If you are currently a couple who own your home and have a superannuation pension and other assets outside your family home with a value of $500,000, you would currently receive 76% of the maximum full age pension. As of 1 January 2017, that same couple will receive 71% of the age pension.

At first glance, this seems like a minor change and that $73 per fortnight should not worry a couple with $500,000 in investable funds available. But looking a little further into this scenario, concerns certainly present themselves.

The challenge to create wealth

With interest rates at record lows with no sign of rising, and share markets with extreme volatility, retirees are finding it harder than ever to create wealth.

The days of 6% term deposit rates are long gone and there is little confidence that a balanced superannuation fund will provide 8% in current global and domestic markets. Add this to our increasing cost of living where currently a comfortable lifestyle for a couple is up to $59,160 per annum. This doesn’t include travel, or any vehicle upgrades, or home renovations that may and probably will arise throughout retirement years.

An ageing population

The Australian Government has major concerns in regards to our ageing population. Between now and 2050, the number of:

  • older people (65 – 84 years) is expected to more than double, and
  • very old people (85 and over) is expected to quadruple.

This means the proportion of people aged 65 and over will increase from 13% to 23% - that’s less and less tax payers as the years go on, which will result in more pressure on the federal budget. The government is aware of this predicament and is looking at different ways to tackle this problem.

A contingency plan

Having an increased taper rate of $3 for every $1,000 (compared to the current $1.50) over the asset test limit will provide government savings; but at what cost?

If Mr and Mrs Jones need to draw down further on their own assets as a result of these pending changes, how long will it be before they will be solely reliant on a government funded age pension? Many commentators have seen this as extremely short sighted.

Of course, there’s also the 100,000 retirees who will lose all payments, creating further need to draw down on personal assets much quicker.

A summary of the changes

For full pensioners

  • For a homeowner (couple), the asset limit will increase from $296,500 to $375,000
  • For a homeowner (single), the asset limit will increase from $209,000 to $250,000
  • For a non-homeowner (couple), the asset limit will increase from $448,000 to $575,000
  • For a non-homeowner (single), the asset limit will increase from $360,500 to $450,000
  • A taper rate will increase from $1.50 to $3 for every $1,000 over the asset lest test limit

On the other end of the scale part-pensioners will see a limit of: 

  • For a homeowner (couple), the asset limit will decrease from $1,178,500 to $816,000
  • For a homeowner (single), the asset limit will decrease from $793,750 to $542,500
  • For a non-homeowner (couple), the asset limit will increase decrease from $1,330,000 to $1,016,000
  • For a non-homeowner (single), the asset limit will increase decrease from $945,250 to $742,500

Every retiree should have already spoken to an authorised representative about how these changes will affect their situation. If you haven’t, you are encouraged to immediately speak to your financial planner about how these changes will affect what you receive from the government, and what strategies can be put in place to limit the effects that they may have on your financial situation.

Please contact The Hopkins Group on 1300 726 082 or drop us a line if you’d like to make an appointment with a financial planner to discuss the pending Centrelink changes.

Sources:

https://www.amp.com.au/news/2016/october/changes-to-the-age-pension-assets-test
https://archive.treasury.gov.au/igr/igr2010/Overview/pdf/IGR_2010_Overview.pdf

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Disclaimer: Anthony Malvaso is an Authorised Representative and John Hopkins Financial Services Pty Ltd is a Corporate Representative of WealthSure Financial Services Pty Ltd Level 1 190 Stirling Street PERTH WA 6000 ACN:130 288 578 AFSL: 326450.

General Advice Warning: This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial advice prior to acting on this information.

 





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