CENTRELINK ASSETS TESTING
WINNERS AND LOSERS
Following the recent Federal Budget announcement 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 from the pension altogether.
WHAT ARE THE CHANGES?
From 1 January 2017 the asset free test 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 $1000 (currently the taper rate is $1.50 for every $1000) above the new asset test free areas.
The Government has stopped short of proposing any changes to the assessment of the family home.
HOW WILL THE CHANGES IMPACT CLIENTS THAT ARE RECEIVING A CENTRELINK PENSION?
Based on our analysis, the tipping point for these groups of clients is $470,000 (married homeowners)
For married homeowners, this means that those couples with:
* Combined savings of between $286,500 and $470,000 are better off under the announced reform;
* $375,000 in assets to stand to benefit most with a $132 per fortnight (or $3432 per annum) increase to their current pension entitlement; and
* Assets in excess of $470,000 are adversely impacted by the announced reforms and will have comparatively lower age pension entitlement.
Affected clients need to spend less or become self-funded, by supplementing their pensions with income from other sources.
At its most drastic level, married homeowners with savings in excess of $832,000 stand to lose $12,792 per annum.
Clearly, the areas of portfolio construction, income stream selection and management of expenses will become even more important for retirement planning.
WHAT ARE SOME KEY CONSIDERATIONS?
Reduction of assets (strategy)
As a result of the changes, for every $1000 reduction in assessable assets, clients may receive an additional $3 per fortnight of pension (currently $1.50 per fortnight or pension).
Consequently, any strategies for reducing assets become more important and should be considered in advance.
Some relevant asset test reduction strategies include:
* contributing to superannuation in the name of a spouse under age pension age;
* improving the principal home;
* gifting earlier or within allowable limits; and
* long term annuities with a depleting asset value.
COMMONWEALTH SENIORS HEALTH CARD (CSHC)
Fortunately, clients who lose their pension entitlement on 1 January 2017 as a result of the changes will be automatically issued with a CSHC, or a Health Care Card for those under age pension age.
They will be exempt from the usual income test requirements for these cards indefinitely.
The CSHC provides similar health and pharmaceutical benefits to the pensioner card and may also attract certain state-based concessions depending on the Government rules of the respective state based authority.
RESIDENTIAL AGED CARE MEMBERS
For residents in residential/home care, receiving lower or no age pension could translate to lower care fees. However, receiving less or no pension will put pressure on cashflow.
Further, to maintain their pension, affected members will have further incentive to maintain their home rather than sell it and have residual sale proceeds accumulating within a bank account.
Concessional Centrelink and Aged care treatment apply when members rent their homes, and If they pay their accommodation payments via instalments.
With the asset test changes coming in on 1 January 2017, the importance and focus of this test becomes even more relevant.
Any strategies or steps to reduce assets should be considered earlier rather then later!
The Government has stoped short of proposing any changes to the assessment of the family home.
DIRECTOR – OPTIMA PARTNERS